It is a commonly accepted idea that, in America, college is out of reach because of its price (tuition and fees). Commonly accepted, but false, as shown by The Economist in a recent article: “American Universities Have an Incentive to Seem Extortionate: They Are Much Cheaper than the ‘Crisis of College Affordability’ Suggests,” (July 23, 2023). The main facts are the following.
In the OECD’s country comparison, the price of college in America is exaggerated because it is based on sticker prices, which are typically discounted, as opposed to foreign prices, generally determined by governments and not subject to market competition. In America, the average private advertised college tuition (including fees) is $40,000 per year, but few students, except wealthy ones, actually pay it; prices are discounted by an average of more than 50%. At Princeton, for example, the average price paid is $16,600, compared to a $56,000 price tag. Moreover, the average discounted price has fallen by $2,000 over the past 15 years, even as the published tuition fees have increased.
Add to this that public state universities (in which three-quarters of college students are enrolled) offer college to state residents for an average price of $10,000. And at the bottom of the price range, community colleges are 50% less expensive than public state colleges, and their two-year degrees can then be applied to a regular four-year college program.
We can understand why publishing sticker prices much higher than the price actually charged is often in universities’ interest (it is in their interest “to seem extortionate”): that’s a way to advertise their quality; and they can offer merit scholarships in lieu of discounts, which make the students and their parents proud.
All that makes sense. The average household income (before tax) in America is $70,000 a year. If the price of college corresponded to sticker prices, it might be difficult to understand how some 50% of Americans hold a college degree, putting the country at the 10th rank from the top among 44 OECD members (OECD data). Finally, note that college subsidized prices (through federal student loans and public universities) increase quantity demanded and push up college prices (technically, a substitution effect), but the taxes that pay these subsidies have an opposite effect (an income effect) that partly compensates the impact on prices.
READER COMMENTS
Craig
Aug 5 2023 at 1:02pm
Know what else was affordable? Yugos. Yes, the issue is often spoken of in terms of the ‘college affordability crisis’ yet of course the students and their parents are actually ‘affording’ the tuition somehow as you are suggesting. If you spend four years in the vast majority of liberal arts programs and you have a BA in sociology, political science, women’s studies or art history, well maybe you afforded it, but I’m not so sure that will play out particularly well in the job market. (I have tactfully omitted economics from that list). Come out a heart surgeon? Well, that’s a different thing, right?
“Add to this that public state universities (in which three-quarters of college students are enrolled) offer college to state residents for an average price of $10,000.”
Honestly I can’t fathom why students go to out of state state universities and pay the out of state tuition at all. Why not just live in that state for a year and then enroll? FL tuition is currently $5,656. Kids in FL to this day come out of high school, get the McJob with tuition assistance of some sort and actually, wait for it, work their way through school quite easily. McD’s, Walmart, UPS, Starbucks (?) all do this. I’d still say coming out with a BA in liberal arts nonsense carries with it a major opportunity cost.
Pierre Lemieux
Aug 5 2023 at 3:16pm
Craig: I don’t think that’s the way to set the problem, though. Consumers who pay the subsidized price obviously think the benefits are greater than the costs for work reasons or for other reasons (like not having an empty head the day one retires). You and I as external observers may think that they are making a bad choice, we might have arguments to that effect, but it is still just an opinion. This being said, it is a valid question whether they would make the same choice if it were not subsidized by the taxpayers, that is, if the price were double.
In my conception of a university, professional degrees, such as medicine, engineering, or plumbing don’t belong there, although biology and physics do. But that is another topic. And perhaps I am wrong and there is an argument for a physician or an engineer not to be totally dumb about their position in time and space and the requirements of civilization. (My forthcoming review of Ortega’s The Revolt of the Masses has something to say about dumb scientists.)
Craig
Aug 5 2023 at 11:25pm
“Craig: I don’t think that’s the way to set the problem, though. Consumers who pay the subsidized price obviously think the benefits are greater than the costs for work reasons or for other reasons (like not having an empty head the day one retires). ”
True but I might correct that with ‘think the benefits WILL be greater’ since many are trying to boost their earning potential.
“You and I as external observers may think that they are making a bad choice, we might have arguments to that effect, but it is still just an opinion.”
And there are millions of students and millions of outcomes that vary, but its hard not to take notice of the student loan crisis as well. Looks like many are making the equivalent of a bad business decision to me.
“This being said, it is a valid question whether they would make the same choice if it were not subsidized by the taxpayers, that is, if the price were double.”
I don’t think there is any question about it. The product is subsidized it will be overconsumed. <–that which is seen, right? What is unseen? The myriad of alternatives.
“In my conception of a university, professional degrees, such as medicine, engineering, or plumbing don’t belong there, although biology and physics do. But that is another topic.”
Perhaps, though honestly I’m seeing degree mills for people more than a few of whom likely shouldn’t be in college at all.
“And perhaps I am wrong and there is an argument for a physician or an engineer not to be totally dumb about their position in time and space and the requirements of civilization.”
Law school I attended was keen on saying something along the lines of ‘we’re a law school, not a lawyer school’
robc
Aug 5 2023 at 8:58pm
I paid out of state tuition (1987-91) because the state of Georgia was smarter than that.
Craig
Aug 5 2023 at 9:52pm
“You must have established a primary or permanent Georgia home at least 12 months immediately preceding the beginning of classes for the semester in which you will be attending in order to be considered a Georgia resident.”
Smarter than what? I’m pretty sure the rule is that most states are only allowed to discriminate against the fact you just moved into the state for a limited amount of time and for one reason or another that time limit is 12 months.
robc
Aug 5 2023 at 10:29pm
They have changed the rule since 1987, at least as I understood it at that time.
Ahmed Fares
Aug 5 2023 at 3:36pm
This from Tyler Cowen in an article titled “Is the college wealth premium *zero*?“:
The link to the article contains a link to the paper quoted above:
https://marginalrevolution.com/marginalrevolution/2019/12/is-the-college-wealth-premium-zero.html
nobody.really
Aug 5 2023 at 7:43pm
I haven’t read that study.
But I note that in 1940, 4.6% of people 25+ had a bachelor’s degree; by 2015 it was 32.5%. In short, when we talk about “people with bachelor’s degrees,” we’re not really talking about the same populations over time.
If we assume that even a small amount of meritocracy influenced who went to college, then it’s not hard to imagine that the average performance of the top 4.6% of a population would exceed the average performance of the top 32.5% of a population with regard to almost any variable. This tells us nothing about the substance of the education; it’s just the principle of diminishing marginal returns.
This info may be relevant to a population-wide policy issue (for example, should we encourage a larger share of the population to go to college?), but I don’t know how useful the information would be regarding any specific individual’s choice to attend college–unless that individual recognized that she was the marginal student. Maybe some kind of measure (SAT scores?) would help a student identify whether she was a marginal student who might derive as much benefit from investing her time and money elsewhere as from going to college?
Craig
Aug 6 2023 at 12:00am
” then it’s not hard to imagine that the average performance of the top 4.6% of a population would exceed the average performance of the top 32.5% of a population with regard to almost any variable. ”
Its a good point and I think a great way to illuminate the point would be to imagine MLB expanding to 1000 teams. The talent would be diluted of course!
David Seltzer
Aug 5 2023 at 4:11pm
Pierre: “Add to this that public state universities (in which three-quarters of college students are enrolled) offer college to state residents for an average price of $10,000. And at the bottom of the price range, community colleges are 50% less expensive than public state colleges, and their two-year degrees can then be applied to a regular four-year college program.” Good point! Georgia Gwinnett College in state tuition is $4458. Many two year students transfer to UGA. There is a difference between schooling and education. If a GGC student is motivated in STEM or any other productive course of study, it would be hard to find a better faculty. If one looks at the faculty and their vita, one would see teachers with PHD’s from Princeton, The University of Texas, Emory University and a host of many top tier colleges and Universities. I’ve tutored math to some of the GGC students and my impression of the various mathematics courses is, they are quite rigorous and clearly taught. GGC may not have the cache of Harvard or Stanford, but the quality of teaching is competitive.
Pierre Lemieux
Aug 5 2023 at 5:43pm
Interesting example and testimony, David!
robc
Aug 5 2023 at 10:02pm
Its telling that you mention transferring to uga and not another school a few miles down I-85. And I am pretty sure that other school(my alma mater, btw) has a better STEM faculty.
David Seltzer
Aug 6 2023 at 12:36pm
Robc: I suspect you are talking about Clemson. Out of state tuition for GGC transfers is nearly 40k. Is Clemson’s STEM, at the margin better, than an increase of 29K for Georgia transfers? It seems the Georgia individual transferring to Clemson would have to make that subjective valuation. BTW. A few of the math majors I tutored were accepted at Georgia Tech.
robc
Aug 6 2023 at 5:22pm
No, not Clemson. By a few miles, I mean Tech. Much closer than Clemson.
robc
Aug 6 2023 at 5:23pm
Also, wouldnt Clemson be UP I-85?
David Seltzer
Aug 6 2023 at 5:38pm
Up I-85 applies for one living south of Hartsfield-Jackson Airport. Nice catch though!
Craig
Aug 6 2023 at 9:18pm
I was thinking Emory for some reason!
Craig
Aug 6 2023 at 12:08am
“I’ve tutored math to some of the GGC students and my impression of the various mathematics courses is, they are quite rigorous and clearly taught. ”
I imagine, but I would also be able to imagine a significant percentage of the student body being incapable of basic algebra as well, but not in any course of study that would require math of course.
David Seltzer
Aug 6 2023 at 12:45pm
Craig said, “I imagine, but I would also be able to imagine a significant percentage of the student body being incapable of basic algebra as well, but not in any course of study that would require math of course.” Basic algebra starts at the eighth grade level in public schools. That they are incapable says more about government run schools. I suspect those students who are home schooled or attend private schools are better prepared.
Vivian Darkbloom
Aug 5 2023 at 5:02pm
The “price” of something isn’t solely what the student is charged upfront. This is especially true of “public universities” where most of the costs to the public are hidden in subsidies and the taxes and pubic borrowing needed to support them. The direct *and indirect* costs of American universities are quite substantial. Those American students (and non-students) are going to pay that higher cost eventually.
Pierre Lemieux
Aug 5 2023 at 5:29pm
Vivian: I agree. I would distinguish the price that the consumer pays and the cost (sometimes, we say “total price”) of what he consumes, part of which may be paid by somebody else (either the taxpayer or private donators).
nobody.really
Aug 5 2023 at 5:11pm
A quibble:
Two points of clarification: First, the linked data addresses only people in the US born between 1993 and 1984. The share of people in the US pursuing higher education has increased over time, so we should exercise caution looking at data regarding one cohort and generalizing to the rest of the nation.
Second, even among people in the US born between 1993 and 1984, fewer than 50% hold bachelor’s degrees:
(Emphasis added.) That is, 10% of people in this cohort go to their community college to get an associate’s degree in Automotive Repair, Hotel and Restaurant Management, or some such thing, but not a bachelor’s degree.
To further clarify, however, the graph shows that roughly 40% of this cohort had a bachelor’s, master’s, or doctoral degree or their equivalent; I surmise the statement about 28% holding a bachelor’s degree excludes those who went on to get a master’s or doctorate.
Pierre Lemieux
Aug 5 2023 at 5:42pm
Nobody: Thanks for the critique. I must confess that, on this last point added late to my post, my research was rather sketchy. I thought I remembered that 30% of Americans hold a Bachelor’s degree, rapidly checked the OECD data, and found that it looked more like 50%. But I should have inquired further before giving the latter figure to my readers. Fortunately, we have readers like you to keep us on our toes.
Craig
Aug 5 2023 at 9:57pm
“The percentage of adults in the U. S. between the ages of 25 to 64 with college degrees, certificates, or industry-recognized certifications, has increased from 37.9% in 2009 to 53.7% in 2021, a gain of nearly 16 percentage points.”
I’m seeing slightly over 50% for those aged 25-64…..
nobody.really
Aug 5 2023 at 11:16pm
I think you’re citing this Forbes article, which goes on to say —
That said, that’s the highest figure for bachelor’s degrees I’ve ever seen. If we round up, we vindicate Pierre Lemieux’s original statement about “some 50% of Americans.” So score one for Craig! (And, ok, for Lemieux, too.)
Craig
Aug 6 2023 at 12:19am
Well, its where the party is, its where the girls are, right?
nobody.really
Aug 6 2023 at 2:48am
1: Yup, college is where the party is—or was, at any rate. I speculate that the original point of college was to provide the sons of the wealthy with a lengthy bacchanal before they settle down to take up family duties, and education was merely one of those pleasurable pursuits. (Economists might say that they were investing in creating memories that would generate a stream of pleasurable memories for life.) In 1088 the University of Bologna was founded independent of any political or religious authorities, and the students “had all the power … and dominated the masters.”
The rise of the Protestant Work Ethic/Calvin meritocracy would ruin the whole concept.
2: And yup, it’s where the girls are. Women outnumber men at most colleges—to the point where admissions offices appear to give a boost to male applicants.
Pierre Lemieux
Aug 6 2023 at 1:31pm
Nobody: From the viewpoint of us males, there is a slight inconsistency between your (1) “where the party the party is—or was” and your (2) “women [today] outnumber men at most colleges.” Statement #2 (which is true) means that the party is now, since sexual competition for females is reduced. Statement #1 is misleading because competition for “the party” was not then. From a male student’s viewpoint, the party is now. From a female’s viewpoint, it is the opposite: the party was then; on the impact of effective sex ratios on sexual competition, see Richard Posner’s Sex and Reason, passim. This should be qualified by the fact that the ease of “the party” now for male students should be discounted by the “legal” risk (university kangaroo courts or criminal charges). Indeed, perhaps this risk has risen partly as a consequence of female resistance to the heightened competition. (All that is positive analysis; ice is ice.)
nobody.really
Aug 7 2023 at 5:12pm
While I can’t spot any fault in this, I want to caution the casual reader: Let the buyer beware.
As an undergrad, I was walking though the building housing the offices for econ profs when I spied a bumper sticker on one door saying, “Economists do it with models.” I promptly told my advisor that I was majoring in economics. Only much later did I come to study the marketing practice of bait & switch….
steve
Aug 5 2023 at 6:18pm
Recently surveyed PA and there are 20 schools with tuition under $10k, about half of those under $8k. I did 2 years at a state extension school to save money before transferring.
Steve
BC
Aug 5 2023 at 9:37pm
“publishing sticker prices much higher than the price actually charged is often in universities’ interest…: that’s a way to advertise their quality”
I think the reasons are mainly about price discrimination and getting more outside aid. Universities charge full sticker price to affluent students and discount from that high price for non-affluent students through need-based aid. If sticker prices were lower, then there would be no way to charge affluent students more. Universities learn students’ ability to pay — which students are not affluent — through the financial information on aid applications. Listing high sticker prices entices students to submit that financial information to get need-based aid.
Also, if outside need-based aid is available, e.g., from the federal govt or private charities, then a high sticker price allows universities to get more of that aid. Suppose the sticker price is 50k and a student can pay only 20k. Then, the university can collect up to 30k from outside aid sources. If the university just charged 20k, then the student wouldn’t be eligible for need-based aid from those outside sources. Basically, a higher sticker price creates the appearance of more “financial need”, keeping the final net price to the student fixed.
Similarly, high sticker prices also allow universities to raise donations from alumni and other donors. They can say that they want to use the donations to offer need-based aid to more students.
It’s all quite ironic. Need-based aid is supposed to make college more affordable. But, through high sticker prices, universities turn such aid into price discrimination to maximize the total cost of college (collected from everyone, not just the student). Maximizing costs is the opposite of improving affordability.
Jim Glass
Aug 6 2023 at 4:48pm
Price discrimination, exactly. The top universities today best even the airlines as the world’s best price discriminators. They can’t say “show us your tax returns and as your income rises we’ll charge you more than our average actual $16,000 price”, but they sure do say “show us your tax returns and if your income is lower we’ll generously, out of our own pocket, give you a discount compared to our basic standard normal $56,000 annual list price.”
Even the airlines can’t make you produce your tax return to buy a ticket.
Yes, again. Some years ago an economist at Yale said that a Martian who looked at America’s top universities would think they are investment funds that operate small educational units for purposes of PR, fundraising, and tax exemption. That was around the time the then-president of Harvard openly said its strategy was to protect and grow the endowment forever, justifying cutbacks in library services and such to protect it in a down investment year.
I have all the names and facts in my old clip files, but that’s work and old stuff, so I just looked at the latest news releases: …. ‘Harvard ends fiscal year 2022 with $406 million profit, er, budget surplus, as cash gifts to the endowment of $584 million increase its value to $52 billion’.
Problem is, lesser universities everywhere are trying to copy Harvard.
Pierre Lemieux
Aug 6 2023 at 5:01pm
Jim: There are at least two problems with the standard price discrimination argument. First, there is no residual claimant in not-for-profit organizations. (Administrators’ and managers’ capacity to increase their salaries is limited.) Secondly, it is not clear that top universities would price discriminate if they wanted to maximize their “profits” since they could probably charge the advertised prices and still get more applicants than they can accept. This second argument probably does not apply to run-of-the-mill universities, but the first still would.
Jim Glass
Aug 8 2023 at 1:07pm
So, getting more revenue doesn’t benefit you without a residual claimant? How do you figure that? I was the president of a non-profit membership organization for some years and started price discriminating right away, it worked. Have you seen, oh, how non-profit hospitals are run and some of the scandals that have come out of them? Universal constant: “More revenue for me = Good!”
Methinks you misunderestimate an organization’s ability to spend on itself. Did you see the recent WSJ story about how Stanford University administrators now outnumber faculty 7-1, and staff outnumber students? There’s more than one staff member for every student. Did you ever attend a school like that?
You’re saying that Princeton could still attract a full house of fully-qualified students charging each $40,000 more than it does now? OK, then why doesn’t it? Think of the library it could build! What benefits them by charging $16,000 instead of $56,000 if they’d have an equally fully qualified student body as today? Are they thinking: “Cutting our revenue by > 2/3rds = Good”?
And really, when customers literally have to produce their tax returns to learn the price each will be charged for the same product, and each individual’s the price goes up directly with the amount of income shown on the return — what is that??
Pierre Lemieux
Aug 9 2023 at 7:54pm
As you must know, the price-discrimination model was designed to the maximization of profit (which is probably why The Economist did not use this analytical tool). One can probably build an analog bureaucratic model (à la Niskanen) and replace “profit” by “discretionary income”: maximize discretionary income under the constraint of academic reputation. This academic-reputation constraint would also explain why a top university like Princeton does not only accept students who can pay $56,000, for there is little doubt there would be enough of them, especially when factoring in the international market (until of course the university’s reputation has gone down to lower-tier colleges). Princeton also wants top students, and many perhaps couldn’t afford $56,000.
Jim Glass
Aug 10 2023 at 7:34pm
[Pierre Lemieux wrote:]
As you must know, the price-discrimination model was designed to the maximization of profit.]
Revenue. To maximize revenue, to help profits.
But a first-principles-first digression: ‘Nonprofits’ with ‘no residual claimant’ not only do have profits, the profits are taxable when from activities not substantially related to the organization’s claimed charitable-public purpose. That’s why the Tax Code calls them “not-for-profit” (not ‘non-profit’) , e.g.: 501(c)(4):
And why they are treated as “tax exempt” (only to the extent their profits are used to serve the public purpose) not “impossible to tax” (because they have no profits).
Profit = net income = net earnings = revenue – expenses. If you think organizations without a “residual claimant” are exempt from this economic reality, please give a citation supporting your view. A lot of charities facing punitive tax bills and penalties will be happy to pay you for it!
One can probably build an analog bureaucratic model (à la Niskanen) and replace “profit” by “discretionary income”:….
Or just look at reality, all over the place. E.g.: when I was a young puppy tax lawyer one day over my desk came an IRS provisional ruling declaring the Cotton Bowl a taxable event because, get this, big-dollar football somehow doesn’t serve an educational purpose! Of course, there was a Congressional uproar and a special tax exemption was promptly created for big-dollar college sports. (This is how old I am – I was there at the beginning!)
Today the non-profit NCAA has annual sports revenue exceeding $16 billion, >$1 billion from just basketball March Madness, and the SEC alone has $1.8 billion. Most people say there’s a heck of a lot of profit being collected and distributed by the NCAA to itself in that. But you might say, “No, there is no profit in that, that’s impossible because there is no residual claimant — there is only a heck of a lot of net revenue, income exceeding expenses, that the NCAA is collecting and distributing to itself”. Which would be a world-class ‘distinction without a difference’.
Unless you added: “Thus, the NCAA cannot and does not maximize its revenue by engaging in price discrimination in sales of everything from bobble-head dolls and stadium seats to boosterships, branded products, and everything else it can think of, up to mega-million $ tiers of media coverage “. Which, I mean, :-).
The NCAA pockets a huge amount of profit. It is just exempt from tax by specific legal enactment. Now back to the original discussion…
1) I said that as president of a not-for-profit membership organization I adopted standard price discrimination strategies as to the sales of both memberships and products & services to the public. And it worked! If I wasn’t price discriminating, what was I doing?
2) Curious about what technical hook you were hanging your “nonprofits can’t price discriminate” hat on, a started to Google. First hit (and enough) was Nonprofit World urging charities to price discriminate more…
Why do industry publications advise the impossible?
3) Princeton not collecting $56,000 per student tuition. You repeat that it could, because there are plenty of students willing to pay that amount “especially when factoring in the international market” — yet you still don’t answer why it doesn’t. There are only two possibilities…
A) The Princetoners are generous and selfless enough to cut their own revenue by 70%. Why would they want higher pay and better offices? AOC and Bernie and Jon Stewart are right, without greedy “owners of residuals” demanding “profits”, prices drop 70%! Yea, Marx! Or…
B) There aren’t enough students available at that price, as you say, “Princeton also wants top students, and many perhaps couldn’t afford $56,000.” So it has to lower the price to get enough students.
But it doesn’t have to lower price by making every student produce a tax return and charging every student, for the same product, a different price, up to the full $56,000, depending on how much income is on the return. What’s that called?
Jim Glass
Aug 10 2023 at 7:46pm
Here’s another fun true story from Non Profit World:
A national organization recruited me and a couple other business people to turn around the not-for-profit membership organization I’ve mentioned before. This not-for-profit is very well known in its field and had a great endowment in the form of very valuable Manhattan real estate in Greenwich Village, by NYU just north of Washington Square – top prime quality for both the street-level retail space and the apartments in it. Yet somehow everything was going bankrupt, and the building physically falling apart.
When we got there we found the place had been totally looted by prior board members for years. They’d rented the apartments in the building to themselves and their cronies at far, far, below market rates – and we were stuck with them forever because of rent control laws … they’d stolen membership dues, endowment funds and what rents there were … one board member regularly went though the building’s mailboxes stealing checks (he disappeared before we had him arrested), etc., etc., a true horror show.
Plus, there were six more board members than allowed by state law. The board members had just kept adding their buddies to it. After we purged the necessary six, the remaining board members ganged up and did everything possible to stop us three. They outnumbered us, outvoted us, and we didn’t have any ownership in anything, had no legal power. We had to use threats, promises, (legal) bribery, and a whole lot of politics to turn things around – but we did.
The real economic function of ownership isn’t to create “profits” from income via accounting rules for residual claimants. It’s to create legal persons who have the power and incentives to stop employees, board members and other stakeholders from looting an organization, like this one was. If there had been an owner protecting his perpetual future interest in the building, none of this corruption would have taken place.
As my kids grew up I served on a bunch of not-for-profit boards for their schools, sports leagues, etc., plus other non-profit real estate boards (condos, coops). Every single one of them had the same sort of problems, not as bad, but some pretty bad.
It’s a big part of the reason why urban public schools are so bad and hugely expensive elite ones are so wasteful and faddish … why Stanford has 7 administrator for every instructor, and more staff than students … why Harvard is now telling its graduate students to use food stamps
while it has a $53 billion endowment.
And, why are near all the developed nations in the world — including China — heading to fiscal calamity in the 2030s and on? Well, nobody owns them! Nobody is protecting the residual interest in the future from the masses looting the fisc today.
That was one good thing about the Age of Kings. A King actually owned the country, and a good one would actually try to protect its value. Maybe we should work on that idea again.
Andre
Aug 6 2023 at 6:01am
Some observations:
Agree, absolutely, college is very affordable if community college and/or local universities are attended and the kid lives at home. This is great and belies the claims that college is unaffordable.
Many parents and kids want to go to the most competitive school they can get into, though (not the one they can pay cash for). That means living away from home.
For kids not living at home, room and board are going to more than double the cost of attendance. $12k per year at a state flagship is $50k tuition plus $50-$60k room and board for a 4-year, so six figures for the degree.
Many, many people do in fact pay sticker price. Princeton is entirely unrepresentative of what people pay (last I read it had the largest per-pupil endowment in the country, which would make it the most extreme outlier out of all colleges): it can afford to subsidize (rather than just cross-subsidize) many students.
I’d argue that the implication that the average price is closer to 30% of sticker is not correct. I was at an admitted students’ day at Washington University (SL), a top 20 school, a few years back, and iirc about 70% of kids pay full freight (on what was going to be a $320k college bill). Granted, Wash U is a rich kids’ school, but it is going to be far more representative of the elite private schools. My WAG is that for say the top 200 universities, the average % of sticker being paid is going to be closer to 70% than 30%, and in any event, almost all those kids have to pay for room & board also, making tuition+room+board exceed $100k for say 2/3 of them. That’s a lot of students, though still a minority of the overall college population.
But then again, as I understand it, the average student loan balance is under $10k. The issue is that there are a gazillion folks with small balances, but a sizeable chunk of folks with mega balances ($100k++) from either attending private undergraduates or from professional degree programs. Then there are all the people with student loan balances, sometimes quite high, who never got the degree. I would tend to agree with Bryan Caplan that they got next to nothing for their money and time.
Ron Browning
Aug 7 2023 at 8:38am
It seems to me a counterfactual is lacking. How is it determined exactly how much a specific person ( John Doe 1) would have earned over a lifetime had he extended his formal education 4 years past high school graduation, or determine how much less a specific person (Jane Doe 1) would earn over a lifetime had she ended her formal education 4 years earlier than college graduation. You can measure a person’s actual income that has attained a college degree and you can measure an actual specific person’s income who has not received that degree but you cannot make both measurements of the same person.
Pierre Lemieux
Aug 7 2023 at 11:12am
Ron: You are right that counterfactuals are needed. In fact, it is impossible to discuss or imagine any cause without referring to counterfactuals; causality implies counterfactuals. (See one of my posts mentioning this, as well as an older post by David Henderson.) Counterfactuals can be built with theoretical analysis, but ideally the conclusion of the latter can be tested in the real world. This is what econometrics attempts to do. Econometric estimates of the college premium try to exclude from this premium (measured in the simple way you mention) other factors that would invalidate the counterfactual, such as different personal characteristics, demographics, etc. — or even propensities to invest in the stock market.
Craig
Aug 7 2023 at 2:26pm
….that which is seen versus that which is unseen. Certain opportunity costs can be known relatively well. If you invest $100 in the S&P 500 in 1990 versus if you invested $100 in another asset class, the $100 doesn’t push the market where you wouldn’t be able to know what the opportunity cost of your investment was. However, Mr. Browning suggests, many opportunity costs simply are not known and cannot be known.
We come to forks in life, we must take them. C’est la vie.
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