Subsidies Drive Up College Costs

In a piece for Slate, the left-leaning business and economics writer Matthew Yglesias says increasing subsidies for college won’t bring down the price.

In an effort to explain, he cites an article from Bloomberg Businessweek that shows that the number of administrators at Purdue University has jumped 54 percent — nearly eight times the growth rate of tenured and tenure-track professors. Nationwide, the number of college and university administrators increased 10 times faster than tenured faculty.

Yglesias explains:

The issue is that schools are finding that they can get away with charging high prices. Since colleges are non-profits, ability to charge high prices doesn't lead to dividend payouts or the acquisition of big cash stockpiles. The money gets spent. And the trend lately has been to spend it on administrators.

This is something legislators need to understand as they push for increases in higher education funding here in Michigan with encouragement from different factions. As the demand for college increases and the cost rises, institutions of higher learning have little incentive to actually cut costs. Why should they when they are getting more students and more tuition along with extra funding from the state?

College costs will not come down until the demand falls and that will occur when schools feel the pinch from fewer students and are forced to compete.

Higher education spending, especially as direct appropriations, is not much more than a subsidy from the poor to the rich. They encourage students to take out loans they cannot afford and devote time to gain knowledge that may or may not have any value in the job market. For that and many other reasons, the state should limit the subsidies.

As Yglesias concludes, “At any given level of subsidy, schools are going to charge families what they can afford to pay and then they're going to take that money and spend it on the stuff that the people running the school want to spend it on.”

Permission to reprint this blog post in whole or in part is hereby granted, provided that the author (or authors) and the Mackinac Center for Public Policy are properly cited.