张紫瑶 1320110628 13会计（ACCA方向）01班
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Rigging the Price for Higher Education
John S. Barry
There is no question that the cost of a college degree is increasing rapidly. An oft-cited 1996 study by the General Accounting Office found that tuition and fees at public institutions have increased some 234 percent since 1980 while family income and the general inflation rate have increased only about 80 percent over the same period.Costs at private college and universities have fared little better, increasing more than 220 percent.
Many reasons have been given for the increasing costs of higher edition. Some of the most persuasive include the increased demand for colleges degrees, higher overhead costs associated with increased faculty research, rcent reductions in state support of public institutions,and federal student aid programs that indirectly subsidize schools. These all are important factors that increase costs; however, there is another reason not. often mentioned. Colleges and universities, particularly elite private universities exercise a certain degree of monopoly power that allows them to charge each individual student a higher price than would be the case otherwise.
This article addresses each of the reasons for increased costs. However, the emphasis is placed on the last one, the monopolistic power of schools.
The Reasons for Increasing Costs
Increased value of a college degree. The most important reason college costs have escalated is that the value of a college education has increased. In fact, according to the General Accounting Office the average college graduate earned about 43 percent more than the average high school graduate did in1980. Today, the difference in earnings between these same two groups is more than 70 percent. Therefore, more and more families are finding it necessary to succeed in the,job market. At the same time，the college age population in general has increased. This increased demand for higher education has driven up the price of college just as increased demand for any commodity drives up the price if that demand is not met with a sufficiently increased supply. Increased research at universities. Another factor affecting tuition costs at many colleges and universities is an increased emphasis on research. The prestige of a college or university today is
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张紫瑶 1320110628 13会计（ACCA方向）01班
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largely a function of the publishing prowess of the institution's professors. Publishing requires research, which requires time. This means that professors are doing less teaching and more research. Fewer hours at the lectern for each professor means either that course and class selection are reduced, which forces students to take longer to finish a degree, or that more professors are required on staff, which forces the institution to spend more for salaries. Charles Sykes made this point in his excellent 1988 book, Pro/scam. Either way, the result is higher fixed or overhead costs, which typically are passed on to students and parents through higher tuition and fees.
Reduced state funding for public institutions. In addition, the current era of fiscal austerity in government has meant slower growth in state budgets, which often has meant slower growth in financial support of public universities.According to Dpartment of Education statistics,state government funds accounted for 46.3 percent of public institution revenues in 1980. By 1993 that figure had dropped to 36.8 percent. Increased tuition has been the only recourse for public institutions simultaneously faced with increased demand and shrinking state support.
Federal programs that facilitate family debt. Federal programs meant to assist students facing steep college costs have themselves added to the rise in tuition. Starting with passage of the Higher Education Act of 1965, the federal government has guaranteed student loans extended by private banks.The Student Loan Marketing Association (Sallie Mae) was established in 1972 as a government-sponsored enterprise to establish a secondary market in stu dent loans. In addition, a limited direct government loan program was estab lished in 1993. These loan programs not only facilitate indebtedness, but also boost the scale of that indebtedness by encouraging steeper tuition in creases. As Thomas Donlan recently wrote in Barron’s magazine, %ulty and staff can vote themselves higher salaries and more resources if the only consequence is that students and parents just have to sign on the dotted line to borrow some more money.\assistance so readily available, schools have no incentive to control the costs of education. Schools as monopolists. Increased demand, increased research, and reduced state funding all affect the \price of a college degree-the advertised tuition that a school charges. However, federal programs (and to a lesser extent private scholarships and institutional aid) that subsidize students directly affect not only the sticker price of college but also the actual price paid by a student and his family. Most students and their families do not pay the full sticker price
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张紫瑶 1320110628 13会计（ACCA方向）01班
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just as few people pay the full sticker price for a new automobile. In fact, thanks to subsidized loans, institutional scholarships, state subsidies, and federal grants, schools can usually get away with charging each student a different price. Thus, the same education typically costs every student a different amount.
The ability to charge different students different prices is known in economic terms as price discrimination. Only firms with monopolistic power are able to engage in price discrimination. The result of price discrimination is that colleges are able to charge each student exactly as much as he or she is willing to pay. While this may seem fair and financial aid is often touted as \even those with low incomes. To understand this important first to understand the basis of every economic transaction takes place in the marketplace.
Everyone who takes part in any economic transaction does so because he believes he will be better off after the deal than he before. Why otherwise should engage in the trade? For example, if you, the student, decide a semester of classes at a particular school for$10,000 then decision that at present that semester of classes is worth more to you than holding on to the$10,000. If this were not the case then you would be better off holding on to the cash or making another purchase. The extra value you receive from that transaction-above and beyond the$10,000 paid-is known as your consumer surplus.
The university is making exactly the same calculation on the other side of the deal.If the transaction transpires then the school has obviously decided that the$10,000 in cash is more valuable than not spending the time and resources to offer the classes. The excess value on this side of the ledger is known in economic terms as producer surplus. This example helps illustrate that a transaction will transpire only when both the purchaser and the seller receive some surplus value from the deal and conversely, an economic trans action will always occur if there is a surplus to be gained by both the consumer and the producer.
Of course, the actual amount of surplus enjoyed by the consumer or producer is difficult if not impossible to measure in most individual market transactions. However, it generally is true that a consumer will receive a greater surplus in a competitive market (one served by many producers) ,than in a monopolistic market (one serverd by a small number of producers) and a prducer will enjoy a larger surplus in a monopolistic market. This is because in a competitive
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