Tuesday, March 6, 2012

NYT on college tuition

One of the NYT Economix columnists notes that tuition is going up at state universities while state subsidies are going down.

Some thoughts:

1. The article would benefit from a distinction between posted prices, actual prices (net of scholarships and grants) and costs. The social costs of providing undergraduate education remain substantially higher than the prices charged to in-state students. Despite the tuition increases, these students continue to receive a large subsidy.

2. The graph is presumably posted prices rather than actual prices. That should have been noted and the distinction discussed. Many students, even at public universities, do not pay the posted price.

3. Government subsidies to higher education are more transfer than investment. Government subsidies to higher education solve a market failure in two cases: one is credit constrained students, who might not attend without a combination of subsidized tuition and loans; the second, to the extent one believes in externalities from higher education, for which there is only modest evidence, is non-credit-constrained students who would not attend given their private price and benefits but who would attend with a subsidy whose social cost does not exceed the value of the externalities produced.

4. Many of the transfers implicit in higher education are unattractive. Setting tuition levels low subsidizes the middle class along with the poor, thus likely moving resources up rather than down the income distribution. Much better, in my view, to have the middle class kids take out loans to cover a tuition level that bears a closer resemblance to social costs and just subsidize the poor but able via grants.

5. Why is it a good idea to have governments run universities? I am missing the comparative advantage that states have in this regard relative to non-profits. Note that, as with elementary and secondary education, who provides the service is a distinct question from who pays for it.

Hat tip: Lones Smith on Facebook

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