by our College Data Analytics TeamWhy do colleges charge so much money?
The simple answer to that question is because they can. Here are three reasons they don’t lower their prices, and how you can begin to change the higher education industry.
Or at least, that’s the way that most Americans perceive higher education.
The most prestigious schools in the country charge a price tag to match. All the schools in the upper echelon are priced accordingly, and schools who are trying to build their image often increase their prices to match top ivy-league schools. The quality of the school is perceived to be great because the price is so high.
Sandy Baum of the Urban Institute says:
“There’s certainly evidence that people don’t know how to measure the quality of a college education … They think that if it’s expensive it must be better. I don’t think colleges want to have high prices, but I do think they see strategic reasons why it may be in their interest to have high prices.”
One basic reason colleges can get away with charging such high prices is that people are still willing to pay them.
Over 21 million students are enrolled in different types of colleges across the country, and many universities turn away more students than they accept. As long as people are willing to pay the high prices of college, they will continue to charge high prices.
Recently, some colleges have seen steep drops in enrollment and, as a response, drastically lowered tuition. For most of these schools, the tactic worked and enrollment has increased. Some colleges have also taken other cost-cutting measures, such as eliminating low-interest departments.
Grants and low-interest loans are supposed to make college more affordable, right?
Well, think again. Colleges know that the majority of students will have an easy way to come up with money (even if it’s money they have to pay back). Thus, they can easily raise prices knowing students will just apply for more loans to pay for them. Without the easy access to college loans, students would be forced to choose lower-priced alternatives or simply demand lower prices, and colleges would have to follow suit.
The theory that more federal aid drives up college tuition prices is known as the Bennett Hypothesis. In an interview with the NY Times, Bennett says:
“If the federal government gives money, tuition goes up. If the federal government doesn’t give money, it goes up. Now, I think the availability of federal funding drives it up more quickly and more surely. Federal student aid makes it easier for colleges to do what they’re going to do anyway, which is raise tuition. There’s more money available.”
Federal loans were meant to help poor students achieve an education that would lift them out of poverty. Too often today they serve as a way to hold college graduates back from economic milestones such as getting married, starting a family, or buying a house. Sometimes the fear of debt can keep students out of college altogether. One study found that debt above a certain level was associated with higher dropout rates ($12,711 for men and $14,682 for women).
Bennett suggests that there is still a place for the government to offer aid in the form of grants for very low-income students, and that school eligibility for student aid should be linked to default rates and tuition increases. Surely making colleges more invested in the success of their students is one place to start increasing the value of college.
Aside from public policy, there is a more immediate way you can change the higher education industry, and that is simply by voting with your dollars. If more and more families put their dollars behind universities that are making an effort to reduce costs while at the same time increase educational quality, more colleges will change their ways.
Whether college pays off for your child depends on many factors, including how affordable the school is, what major they choose, if they are able to graduate on time (or at all), and more.
Unsurprisingly, not all colleges are equal when it comes to ROI. Perhaps more surprisingly, some schools actually have a negative ROI after taking into account the costs of attending.
“The real test is whether the higher wages are enough to offset the investment in time and money associated with college attendance.”