A personal finance blog dedicated discussing such topics as budgeting, asset allocation, 401K, IRA, cash flow, insurance, financial planning, portfolio management, and other areas in personal finance.


Sunday, February 13, 2005

The Cost of College

On Friday I raised the question: "Why Does the Cost of College Increase so Quickly?"

I found a review written by John O. McGinnis (Wednesday, November 17, 2004) of the book Going Broke by Degree - by Richard Vedder. So, this post will be a review of a review.

The review mentioned the following theories as to why the cost of going to a university is increasing so quickly:

1. Universities face only limited market discipline because they (and their professor workers) lack a clear metric of performance, such as profits.
I agree with this theory. Every time I turn around I see another article or news story about how the cost of college is expected to increase, which becomes a self-fulfilling prophecy. In essence, we are giving colleges and universities the opportunity to raise prices because it is expected of them.

2. Government, with its subsidies and loans, has confused the real costs of college, making it harder for parents to judge which college is the best bargain. And government has raised college costs by imposing a host of regulations concerning everything from admissions to animal research.

3. The premium for intelligence is rising in the business world. The research departments at universities must compete with the Microsofts, Intels and other companies in the business world for tallented researchers. So, they must pay more, which leads to higher administrative costs. Guess what that leads to? That's right, higher tuition.

4. Much of the benefit fo going to a university is the social network it generates. This leads universities to spend lavishly on fancy dorm rooms and big swimming pools.

My next post will discuss a couple of ways to reduce college costs.