Can someone smarter than me answer this question...

[TPS]

If you could provide a more thorough discussion when you have time - that would be greatly appreciated.

A few more points (since my late night posts are typically "fueled" by alcohol).

- As everyone knows, people go to college because there is a relationship between income and education which is large enough so that there is a "positive return on the investment." However, not everyone has the qualifications to get in, and not everyone wants a degree. But let's assume the supply of qualified students is large enough to meet your underlying assumption.

- As for subsidizing education, the economic rational is that there are positive externalities. There are benefits from having a more educated populace that can't be measured in any cost-benefit analysis (imagine this site populated with nothing but "wackas"... ).

- The most important assumption about the impact of an increased demand for education: is there excess capacity? I would argue that there is; and if there is, then the marginal cost of educating one more student is near zero. And in most cases, an increase in enrollment is met with hiring an "adjunct" at an extremely low rate per course. Currently, as institutions reach "physical classroom capacity constraints," there are many ways to create flexibility. Teaching more courses in the evening, weekends, and various forms of online teaching (for example, meet face-2-face one day/week instead two, or go completely online). In fact, online learning essentially eliminates the physical constraint. Online unis like Phoenix don't need physical space at all. Begs the question, what factors influence costs then?

I've run out of time--it's happy hour, but, again, for state institutions, its really a function of state support. Pataki significantly cut SUNY, so tuition went up to cover the cuts. I think one thing that your specific question ignores, is that the largest part of college costs is "room and board," and those costs have gone up significantly. They represent 60% of total costs, whereas 30% is tuition (remainder is fees).

More later if you're interested.

[StupidNation]

The one year of federal interest subsidy on a $5000 student loan at 6.8% is how much? $350 per year or so.

 

It's not the cost of the student, it's the increase to immediate revenue which is usually converted into bigger lined pockets. The same argument is used with mortgages with every $1,000 costs $7/mo, but the reality is inflation is inflation.

[X. Benedict]

It's not the cost of the student, it's the increase to immediate revenue which is usually converted into bigger lined pockets. The same argument is used with mortgages with every $1,000 costs $7/mo, but the reality is inflation is inflation.

Interesting way to look at it.......but I think most colleges and universities set tuition based on expenses rather than consumer demand.....typically they set a price point and then discount in terms of grants and aid, scholarships etc... I am skeptical that they would be that reactive to Federal Loan availability (that would probably only offset a credit crunch for students in terms of market loans tightening). Now if the Federal government doubled the size of Pell grants that might make a difference.

[finknottle]

If every student was offered a $5000 per year student loan, wouldn't the cost of tuition just raise that much faster, such that the pre-loan tuition cost and the post-loan tuition cost would just be the same?

 

And now we know why academics are uniformly Obama supporters. He will be very good for the education industry.

[finknottle]

I doubt that you could draw the same parallels with 'real world' Supply and Demand here because (in theory at least) most universities are not-for-profit.

 

Don't be fooled by the label not-for-profit. It is over-hyped, and has come to suggest that the NPO's are somehow inherently 'good.'

 

NPO's still strive to generate profits - otherwise they go out of business. The only difference is that instead of distributing that profit to the shareholders, they hang on to it. So generally speaking, if a university has more money coming in, they invest it for yet more return later on, or they can give fat bonuses or raise salaries across the board. Profit is still the motive - the only difference is that I can buy a piece of Exxon - I can't buy a piece of an NPO like Harvard.

[finknottle]

If you replace the word "student loan" with "government grant" or "universal scholarship," then your assertion is correct; the market for a college degree would quickly reach a supply-demand equilibrium where the tuition basically becomes $5K/year more expensive.

 

But it's not a loan. He mispoke, right?

 

My understanding is that it is a tax credit; if you check the community service box, your taxe payments are credited with $4,000. (So if you owe no taxes like most students, you get a $4,000 "refund" check in the mail.)