Why Does it Cost SO Much?
Sometimes I can’t help but ask myself, why is college so expensive? How can tuition can be increasing by thousands of dollars per year but colleges still have to cut programs and staff? Governments, families, and students struggle with these questions constantly, but the answer lies in the simple truth of fundamental economics.
Boring language time! If we look at the college “business model” from a supply and demand mindset, we can better understand the answers to all of our college-related financial questions. Colleges rely on income from the private investor (parents and students) as well as the federal government (which is actually broke). Colleges are suffocating; let’s take a moment to explore why.
Economic laws state that when a certain commodity (in this case, a college education) is in great demand (which it is), the price rises (which it is — nearly 9% for me this year). The idea works on the premise that people who cannot afford the commodity (the education) will not buy it (just like anything else — TV’s, cars, boats, etc.). In a perfect free market economy, the declining customer base would cause the prices to actually decline; colleges would have to find a way to compete and provide a better price and higher quality product, or as institutions, colleges and universities would fail. BUT, because the industry is so heavily reliant on federal funding and regulated to federal standards, the prices continue to increase. The problem here is actually not the colleges at all.
THE FEDERAL GOVERNMENT CREATES THE ILLUSION THAT EVERYONE CAN AFFORD COLLEGE (with federal money, of course).
The reason that college costs are rising is that people still buy the education that they cannot afford. People have a common misconception: they think that a college degree brings financial success automatically, when in reality, it buries most people in debt for years. Because students don’t have to foot the entire bill (thanks to the government), colleges are struggling; they never receive enough money to cover their costs from the federal government, who uses money from education to fund other projects.
So, although I often talk about taking advantage of the opportunities that the federal government offers, financially speaking, you should never rely on them to finance your entire education. One day, that money will be gone and, as it turns out, that may be the best thing that ever happened to the quality and price of education in America.