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Federal Financial Aid Is the Real Reason College Costs Too Much

There are three standard explanations as to why college costs too much. First, there is the so-called Baumol Effect, named after a Princeton professor, William Baumol, that argues that teaching is like theater: professors are actors performing before students. Just as it takes as many actors now to perform King Lear as it did 400 years ago when it was written, there has been no productivity advance in higher education. This argument,however, ignores that only one-third of university costs are related to instruction, and that new technology allows teaches to read wider audiences.

Second, it is argued that state legislatures have reduced apropriations for colleges, forcing them to raise fees. As Paul Campos argued recently in the New York Times, this argument is tenuous on factual grounds (universities get more inflation-adjusted appropriations than in, say, 1975, but college tuition fees are much higher), and ignores the fact that private schools that don’t get a dime of state money have raised their fees aggressively, as well.

Third, former Education Secretary Bill Bennett argued in 1987 that federal student financial aid programs allow colleges to raise fees substantially, and that the colleges thus capture monies meant for students. Federal student financial aid has permitted higher tuition fees, and helped finance an academic arms race where universities have hired small armies of bureaucrats, given professors low teaching loads so they can write articles on obscure topics that no one reads, and led to a building boom of ever more luxurious facilities, including climbing walls, lazy rivers, and the like.

Richard K. Vedder is a Senior Fellow at the Independent Institute, Distinguished Emeritus Professor of Economics at Ohio University, and co-author (with Lowell Gallaway) of the award-winning Independent Institute book, Out of Work: Unemployment and Government in Twentieth-Century America.

From Richard K. Vedder
CAN TEACHERS OWN THEIR OWN SCHOOLS?: New Strategies for Educational Excellence
In Can Teachers Own Their Own Schools?, Richard Vedder examines the economics, history, and politics of education and argues that public schools should be privatized. Privatized public schools would benefit from competition, market discipline, and the incentives essential to produce cost-effective, educational quality, and attract the additional funding and expertise needed to revolutionize school systems.