Here's Why Tuition Can't Keep Rising

A blog about business and economics.
Feb. 7 2013 10:47 AM

The Real Problem With Colleges' Business Model

Students from the University of Texas at El Paso drink beer from a funnel on the beach during the annual ritual of Spring Break March 25, 2008 on South Padre Island, Texas.
Students from the University of Texas at El Paso drink beer from a funnel on the beach during the annual ritual of Spring Break March 25, 2008 on South Padre Island, Texas.

Photo by Rick Gershon/Getty Images

Below (via Tyler Cowen) is an important chart from Diana Carew of the Progressive Policy Institute showing the falling earnings of college graduates in the 25-to-34-year-old bracket.

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And that right there is the simple problem with the existing higher education business model in the United States, which has involved aggregate per student spending that rises faster than inflation for a long time. This has relatively little bearing on the missplaced worry about whether or not college is "worth it" (the relative earnings of college gradatues are still high) or on the overhyped idea that online education is going to disrupt traditional learning. The real issue is simply that people can't spend money they don't have on tuition, nor will banks want to lend people money that they aren't going to have.

If schools aren't going to be able to charge as much, they'll have to spend less on various things including the amenities that potential students desire. With or without the injection of lots of new digital technology it's clearly possible to offer a cheaper, more stripped-down version of education. If people can't afford to keep spending so much, that's what we'll get.

Matthew Yglesias is the executive editor of Vox and author of The Rent Is Too Damn High.

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