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Economics of college: Part III

By Thomas Sowell
April 26, 2008

Why does college cost so much?

There are two basic reasons. The first is that people will pay what the colleges charge. The second is that there is little incentive for colleges to reduce the tuition they charge.

Those who want the government to provide subsidies to help meet the high cost of college seem not to consider whether government subsidies might have contributed to the high cost of college in the first place.

In any kind of economic transaction, it seldom makes sense to charge prices so high that very few people can afford to pay them. But, with the government ready to step in and help whenever tuition is "unaffordable," why not charge more than the traffic will bear and bring in Uncle Sam to make up the difference?

The president of a small college once told me that, if he charged tuition that was affordable, even an institution the size of his would lose millions of dollars of government money every year.

In a normal market situation, each competing enterprise has an incentive to lower prices if that would attract business away from competitors and increase its profits.

Unfortunately, the academic world is not a normal market. Some of the ways of cutting costs that a business might use are not available to a college or university because of restrictions by the accrediting agencies and the American Association of University Professors.

There was a time, back in the early 1960s, when my academic career began, when many — if not most — colleges had faculty teaching 12 semester hours and a few had teaching loads of 15 semester hours.

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