College Tuition Bubble Might Be a Myth, Economist Argues

The debate over what plagues higher education in the United States is a heated one, but it’s rare to hear that what is really wrong with college is that it is too cheap. Until now. In an article in Forbes Magazine, Jeffrey Dorfman argues not only that the problem of high prices in higher education has been overblown, but the reality is that when analyzed from an economic perspective, college degrees are actually underpriced.

The concept is supply and demand. Can we really argue that tuition at Harvard, Yale or any other selective private school is too high-priced if there are 20 applicants for each of the spots in the freshman class? If the higher education marketplace mimicked a free marketplace, those universities would be able to raise their tuition without controversy, pointing to the high demand as all the justification they needed.

In most businesses, when you have such overwhelming demand for your product, you raise the price (and increase production). Many colleges, especially private ones, do not want to increase the size of their student bodies, but why would they not increase prices when they have so many prospective students desperate to attend?
Further, the prices that people focus on are not the prices that most students and their families actually pay. Most of the reporting, aiming for the sensational, reports the tuition or even the full cost of attendance, which is tuition, room, board, books, and miscellaneous living expenses. Yet, most students receive financial aid in some form, so the price they pay is not the full price.

Dorfman argues that people who complain about the high price of private colleges demonstrate a certain sense of entitlement – believing that access to a high-priced education is basically a right. And according to him, it is not. Those who can not afford tuition at a high-priced school should be viewed exactly like consumers who can not afford any other high-priced good. Instead of the government offering them a helping hand to buy a bigger television, they should be reminded that cheaper options are out there and encouraged to identify and pursue a better and more appropriate value.

Critics, just like students, need to remember that the public option is out there. Community colleges and technical schools are still incredibly affordable. Most states have a broad selection of community colleges, technical schools, and then other increasingly expensive state colleges and universities that tend to increase in quality as the price of tuition increases. Yet, for in-state residents, even the most expensive public university is generally quite affordable with a total cost often around $20,000 per year even at full price.