Causes of rising college costs

The pace at which college costs have been rising has gone beyond what most people consider to be sustainable. Due to this, there is now an enormous student debt problem in America, which some refer to as a “student loan crisis.” Many individuals attribute the excessive costs on college administrators’ and student loan companies’ avarice. However, it also has a lot to do with how the supply and demand of college education, increasing funding for education, and rivalry for students among institutions all connect to the basic rules of supply and demand.

Introduction
The rising expense of education is one of the biggest issues American students are now experiencing. As the overall amount of student loan debt continues to rise, reaching $1.56 trillion as of February 2019, it has become an increasingly divisive political topic in the United States. Currently, there are over 44.7 million debtors, each of whom owes between $1 and well over $200,000. (Friedman, 2019). People advocate for a variety of alternatives, from maintaining the status quo to having the government pay the whole cost of attending college. Many individuals are left wondering how they will ever be able to pay for college, having to either resort to ever-larger, unavoidable student loans or being unable to attend college as a result of tuition rising year after year, often at a rate exceeding inflation or the consumer price index. Both of those scenarios are undesirable, as having a lot of debt delays the time when people can afford to invest and save for retirement or make large purchases like homes, and not having a college degree results in many people never being able to take advantage of how much money they could have made in their lifetimes.

The issue of why college is so costly then emerges. Why are individuals finding it more and harder to pay for college when there are so many programs available today to assist them do so, including federal grants or work-study, scholarships, state need-based grants, and more? There are other factors that have contributed to the mountain of debt that individuals must incur in order to pay for college, so this is not a single cause problem. Even if a college is not for business, some people can argue that greedy behavior on the part of universities is to blame. Others claim that borrowers are to blame for taking on more debt than they can manage and maybe for not earning enough while in college to prevent that error. Finding the degrees of truth inside people’s assertions is preferable than blaming. Due to rising demand, a growth in lenders, and competition from other colleges for potential students, college tuition has substantially escalated.

Higher Demand
The rules of supply and demand are two fundamental ideas in microeconomics. According to the law of supply, suppliers will simply provide more of a product when the price rises. That indicates a strong association. The law of demand, on the other hand, asserts that customers will consume less of a product as its price rises, which is a negative connection. The amount of an item provided will often grow as both supply and demand rise, but the price will typically stay mostly unchanged or even fluctuate. However, there are only a certain number of spaces available, thus new space or colleges must be created. This calls for a smaller pool of academics with advanced degrees who can demand greater salaries.

The concept of “cost disease” was introduced by William Baumol and William Bowen in their 1966 book Performance Arts: An Economic Dilemma. The fundamental assumption is that service prices are growing quickly because the expenses of the service sector are doing so more quickly than the cost of producing the majority of commodities. Because they can’t create at a greater rate, college teachers drive increasing costs over time (Archibald and Feldman, 2001, p.39). College professors may charge more since there is a greater demand for their skills. In addition, institutions need to recruit additional teaching assistants to help professors due to their low output capacity. While on an individual basis they are less expensive than recruiting additional academics, collectively they increase the cost of wages given to a college’s staff.

Students demand a high-quality education, thus institutions often have to give hefty wages for such teachers in order to recruit them. To both “attract and maintain high quality teachers,” Ronald G. Ehrenberg argues in Tuition Rising, “central administrators want their [professors] to be compensated lavishly.” However, “there is an inescapable tradeoff between the administrators’ attempts to regulate the pace of tuition rises… and to give large compensation increases for the faculty, in the absence of a desire to trim the number of academics and staff at an institution” (Ehrenberg, 2002, p.113). More instructors are required due to the rising demand, which might lead to a market saturation. In order to satisfy the staff, pay is increased, which raises tuition.

For many individuals, a college degree wasn’t always affordable. Joel Best and Eric Best describe how education, even in the elementary and secondary grades, was seen as “a private, individualistic affair; if you wanted your kid educated, you paid… all the way through college” in The Student Loan Mess (Best, 2014, p.25). However, society would benefit more from a highly educated populace. “More education decreases all kinds of social issues: educated people live longer, healthier lives, have higher stable families, and are less likely to run into legal issues… more education helps both individuals and the society” (Best, 2014, p.25). As a result, throughout time, state and federal governments built public schools and mandated education up to a particular age, often till the age of sixteen or seventeen in most jurisdictions now, initially just until the eighth grade.

Many individuals were receiving education at a level that increased as time went on, but college remained out of reach for those who couldn’t afford it or the private tutors required to get the grades required for admission. That was about to change, however, and President Franklin D. Roosevelt’s signing of the Servicemen’s Readjustment Act of 1944, often known as the GI Bill, was the occasion that had the most impact on the increase in college enrolment. Veterans’ benefits were not a novel concept. Glenn C. Altschuler and Stuart M. Blumin describe the benefits that veterans previously enjoyed in their book The GI Bill. Veteran’s benefits laws date at least as far back as the Plymouth colonists’ decision to retain for life any soldier who was injured while serving the colony. Almost every wartime engagement has resulted in the creation of at least one veteran’s benefits statute (Altschuler and Blumin, 2009, p.13). The distinction is that such advantages almost invariably came in the form of pensions. Additionally, they were only given to families of fallen troops or servicemen who were injured while on duty. All veterans had access to the GI Bill’s benefits when they left the military, including healthcare, cheap housing, and financial aid for college. The National Center for Education Statistics’ study 120 Years of American Education demonstrates the enormous increase in bachelor’s degrees awarded by higher education institutions. As “young people [finish] high school and subsequently [become] eligible for college entrance,” there is a little increase in the 1920s, but the real increase occurs immediately after the GI Bill is approved (Snyder, 1993, p.67). The number of bachelor’s degrees awarded quadrupled during the 1945–46 and 1947–48 academic years, going from 136,174 to 271,186, and it grew rapidly after that (Snyder, 1993, table 28). Occasionally, during times of conflict, it would slow down, but it would always return, stronger than before. America now had more access to higher education than ever before, and this trend was here to stay. The Rise of Lenders
Since tuition is sometimes too expensive to pay out of pocket, many students turn to taking out loans to cover their educational expenses. One of the biggest lenders of student loans in the nation, Sallie Mae, is a name that loan borrowers have definitely heard of. In 1972, it was established as a government-sponsored business. Their goal was to provide loans to students since they were undesirable to commercial lenders because “students seldom have an established credit record or large assets” (Connell, 2016, p.43). Sallie Mae jumped in to fill the void left by a market that had opened up with millions of individuals asking for money.

Up until 1984, Sallie Mae had access to low interest rates from the Federal Financing Bank. When they were unavailable, the Treasury Department substituted that benefit by giving Sallie Mae access to variable interest rates for lengths of up to 15 years. Sallie Mae’s capital increased dramatically, from $300 million in assets in 1975 to $39 billion in 1990—a staggering increase of 13,000%—while the S&P 500 and the US GDP only increased by around 470% and 341%, respectively, over the same time (Connell, 2016, p.44-45). Sallie Mae eventually became a private company, taking with it the enormous sum of money and reputation that it had built up over the years.

Early on, lenders had to deal with the possibility that borrowers may file for bankruptcy in order to pay off the debt they had accumulated. “The most often claimed justification for making student loans nondischargeable is to avoid fraud,” Duke Chen writes in Student Loans in Bankruptcy. “Congress amended the Higher Education Act of 1965 in 1976 by prohibiting borrowers from discharging student loans through bankruptcy during the first five years of their repayment periods; in 1990, the ban was extended to seven years,” (Chen, 2007, p.5) warning that making student loans dischargeable would be “almost specifically designed to encourage fraud” (Best & Best, 2014, 74-75). The Higher Education Amendments of 1998, which “made [governmental] student loan debt] non-dischargeable through bankruptcy unless the debtor could clear the relatively high bar of demonstrating undue hardship,” were passed by Congress as credit card debt increased and bankruptcy rates continued to rise (Best & Best, 2014, p.75). “In 2005, Congress passed the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA), which amended [the Higher Education Act of 1965] to make private educational loans nondischargeable, when in the past it had only applied to governmental loans,” according to Chen (Chen, 2007, p. 5). As a result, borrowers’ loans were no longer treated as unsecured loans but rather as secured obligations, such as alimony, child support, and criminal fines (Chen, 2007, p.5)

More Laughter, More Cash
Colleges are increasingly having to battle for the attention of potential students as more and more individuals are competing to attend college and have access to the funds to do so. Students now have more alternatives, even though there is still an admissions procedure and not every student can enroll in the institution of their choice. Colleges now have to make every effort to seem more appealing. Goldie Blumenstyk briefly touches on the history of the United States in her book American Higher Education in Crisis. The publishing of News and World Report’s college rankings began in 1985. “As Americans’ critics, the News has noticed that many of the ranking indicators are directly related to how much money institutions spend. For instance, institutions may raise the academic standing of their student population, which benefits them in the rankings, by investing more in merit assistance for the best students (Blumenstyk, 2015, p.53). There are other sites, like Niche, where you can discover college rankings, but U.S. The “most significant [ranked] of America’s universities” is considered to be news.

Connell claims that there is a “amenities war” in universities in his book Breaking Point (Connell, 2016, p.29). College infrastructure investment has significantly grown despite the recession. “Since 1997, the cost of college infrastructure improvements has climbed on average, by an average yearly increase of 25%.” (Connell, 2016, p.30). These are increases in expenditure on structures like resident halls, scientific buildings, and libraries. And even while these structures may be required, the expense of their construction and upkeep adds significantly to each student’s tuition.

But such expenses aren’t in vain since prospective students want to know how well-respected an institution is academically and how much it will cost to attend. Due to greater rivalry between institutions, investment on infrastructure also rises. In addition to spending more on academics, institutions are also spending more on ‘luxury’ products that have little to do with the quality of the education they provide. These include things like “student activities, cultural events, intramural sports… intercollegiate athletics… and campus shops,” as mentioned in Breaking Point (Connell, 2016, p.32). While at first sight they may not seem to be costly products, they sometimes need considerably bigger and more expensive structures to house them, such as different sports facilities for intramural and university athletics. These structures contribute to the already high infrastructure costs that schools ostensibly must have in order to compete with institutions in their peer group.

Students put a high value on a great education, but they also appreciate the extras that campuses have to offer. The authors of a research by the Delta Cost Project sought to ascertain how college students regard “academics, expenses, and social facilities.” Students often “favor institution expenditure on consumer features… but do not value spending on education,” according to research (Connell, 2016, p.31-32). This explains why universities are increasing expenditure on both academic and non-academic variables, despite the possibility that they are increasing spending on academic reasons. The size and breadth of a college’s facilities might help it stand out from the competition as many universities currently offer the same degrees. However, a large portion of the amenities that universities invest money on have little to do with academics. A “country-clubization” of American universities is taking place as colleges spend tens of millions of dollars on facilities that serve no educational purpose. Examples include a “$10 million renovation project to include a “Olympic-sized swimming pool, co-ed sauna, juice bar, golf simulator, and rock-climbing wall” at the University of Pennsylvania, or a “new $80 million renovation project to include a “new $80 million renovation project to include a “new $80 million renovation project to (Connell, 2016, p.33). While having those additional amenities is definitely wonderful, they only serve to draw potential students to such universities and have little effect on how well they do academically.

Potentially Objection
One argument against collegiate athletics being mentioned as superfluous investment for a university is that such sporting events may provide a healthy cash stream for the universities. The concept is that professional sports teams’ income streams—broadcasting agreements, club apparel sales, etc.—would assist institutions in covering ongoing expenditures in addition to the facility’s original investment. This is seldom the case, however. Only 23 of the 228 public universities that run Division I programs generated more revenue from tickets, licensing, broadcast deals, and donations in 2012 than they spent on athletics, according to data that is regularly compiled by USA Today and Indiana University’s National Sports Journalism Center. The data from USA Today and government sources revealed that, from 2005 to 2011, sports expenditure per athlete increased more quickly than academic spending per student. And even among those that had surpluses, sixteen still required subsidies from other university funding. (2015) Blumenstyk, p. 82–83 Sports programs therefore not only often result in a revenue drain but also detract from the educational component of institutions. That is not to imply that college sports programs should be eliminated since many students take part in them. Simply put, it’s critical to comprehend the reality of university sports since a lot of individuals can mistakenly believe that they are more lucrative than they really are.

Conclusion
The same market factors that drive up prices of other items in crowded marketplaces also push up college tuition. Its price increases are aided by the fact that many people consider it to be a kind of requirement for success in life, and as a result, something that must be had, somewhat regardless of the cost. Due to the increased demand, this enables institutions to justify rates, yet they are not the only ones to blame for the increase. It’s a very recent fact that wasn’t witnessed in the 20th century that college is so accessible to the middle class and even the working class. Prices rise because students want amenities that are not necessarily required for a decent education but yet help them have a more pleasurable college experience.