Wednesday, December 10, 2008

Reality Check for Private Colleges

Colleges have something close to a monopoly; they can charge what they like because they have a captive audience. As Robert J. Massa, vice president for enrollment and student life at Dickinson College in Pennsylvania, told the New York Times earlier this month in an article on colleges' current financial strain: "What we've done in higher education is let our dreams and aspirations dictate our cost structure." The silver lining here is that, coupled with the hot breath of recent congressional scrutiny in the form of Iowa Sen. Charles Grassley's demands that universities cease hoarding their endowments, the hardships imposed by the financial crisis are forcing private higher education to reconsider business as usual. Applications to Binghamton University, part of New York's state university system, were up 50% this fall. A similar loss of market share by private colleges is no doubt taking place in other states

1 comment:

Anonymous said...

Your analysis is probably wrong. I'd venture to say that the cost of higher education has risen to unprecedented levels at unprecedented rates because of unprecedented volumes of student loans. It's called price elasticity. Look into it... it's far more likely to be the root of the spiraling costs of higher ed. It's not unlike the housing bubble where just about any sucker could get a loan... all that demand was unleashed and drove prices up. The same thing happened in higher ed. Student loans became available to anyone for any degree - much more so than any time in the past. That allowed universities to increase the cost of higher education because students were now insensitive to price increases since it was all be absorbed by deferred debt. It was the students who let their dreams and aspirations dictate their expense structure and the universities who increased tuition to manage demand.

Furthermore, the increase in less expensive state schools and, as you hypothesized, away from pricier private schools is likely a similar function of price elasticity. Student loan availability has all but evaporated, which means that would be students and their cash strapped families are suddenly faced with the reality of looking at the price tag and doing a cost benefit analysis when it comes to choosing a university.