The Economics of Going to College



Every week there is news of a small college closing or merging. Like churches, the survival of small colleges is swimming upstream. Change is not working in favor of either higher education or churches. The economics of both is flawed.

I've discussed here often the economics of churches. Those in the pews who supply the money to run the place need to feel they get something worth as much or more than what the pay. The faith, in my opinion has over promised what donors get for their money--the gods and the "guaranteed" afterlife is now viewed with skepticism. Fewer children per family has hurt also but a good product should sell anyway, and it is not.

Something similar has happened in colleges (I'm using the word colleges instead of universities, it's easier to type). I'm not a scholar who studies or publishes about higher education but it's been close to me all my life. I've lived on or next to a campus for 60 years of my life. 

When I was a professor of economics and high-level administrators would come to visit our small corner of the campus I sometimes said, "I wish we could have a conversation about the economics of this place." This was always blown off with an eye roll. 

Colleges have roughly three sources of money, 1.] cash flow from state governments, church denominations or donors, 2.] grants from private corporations or government and 3.] student tuition. Like those in the church pews, each of these must feel it gets its money's worth or feel the return is as good or better than other places it could spend this money. 

Space limits my discussion to only the 3.], student tuition. For perhaps 100 years, college has been marketed in the U.S. mostly as a path to making more money. ("Take something that will give you a job.") Administrators did not prepare for a time, like today, when the cost of college is too high compared to the money the student earns after she graduated. Administrators cannot change the salaries of its graduates but they can change the other number, the cost of tuition. By lowering the cost of running colleges and then lowering tuition, the economics attending college can be made to work for students. This can be done and is being done by a handful of colleges. This is not done everywhere because administrators are made worse off--it's not in the interest of administrators to lower the cost of running colleges. 

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