Thursday, October 3

Tuition Intuition: There's Something Fishy Going on with the Cost of College Education

Author's note: Please excuse the small size of the graphs, but it was the only way could fit them on the page due to CBC's wide margins. The graphs are more legible here.

Some people get really riled up when they think they’re getting ripped off.
You’ll probably notice it most often whenever the price of gasoline goes up.  You’ll hear them say things like, “Those damned oil companies, they’re making billions by gouging me.”  Well, let’s take a look at gasoline prices over the course of time.

If you look only at the nominal price of gasoline, it has gone up quite a bit, but once you adjust for inflation, the real price of gas is close to what it was 100 years ago.  Now it has increased in price substantially since its all time low point in the late nineties, but from that point until our recent highs that’s “only” a increase of about 340%, and there are some easy to understand explanations for it, like increased world demand and tensions in the Middle East.  

In the next graph we see gas prices compared to the consumer price index (CPI), and they don’t look quite so outrageous. As an added bonus, the price of US postage stamps are thrown in there.  Now what excuse does the USPS have for that increase?  We know that they can’t blame it on increased demand, and you can't blame it just on decreased revenue due to electronic communication, that didn't start until the mid 90's, and the price of stamps started increasing rapidly, 20 years before that.  

source: Carpe Diem

Now let’s take a look at taxes.  They upset quite a few people (including me), but my problem is more what my tax dollars are spent upon than anything else.  If you look at the graph below, for most people the line for income tax has remained quite flat over the last 40 years, and recently, even gone down some.

My point here is that what you pay for most things in real dollars, remains relatively constant.  If something goes up in price faster than the rate of inflation, there better be a good reason, like increase in demand, decrease in supply, or increase in cost of inputs for that particular item.  Whatever the reason(s) they should almost always be obvious and easy to understand.  If they are not, the red flags should go up immediately.  The harder it is to understand the reason for dramatic price increases, the greater chance there is of ineptitude or malfeasance.  In the case of the Post Office, the price increase has been due to poor management.

Now, let’s look at the following graph:

As I mentioned before, the costs of most things have remained relatively constant over the course of time.  In other words, price increases for most things have been very similar to the orange CPI All Items line, even homes.  (With exception of the mid 2000’s housing bubble and subsequent crash, which brought home prices back in line.)

Here’s another graph including food prices.

Here’s one more with even more items that show how out of line the increase in college tuition costs has been:

Two exceptions to the rule of price increases mirroring inflation have been college tuition and medical care, and there isn’t a legitimate reason for either to be.  We’ll talk about health care some other day.  Let’s now, talk about tuition costs.  

I’ve been looking for a legitimate  explanation for the increase in tuition fees and appears that the best defense our colleges and universities can come up with is a decrease in state funding. It is a fact that it has increased as shown by the following, which applies to the University of Washington specifically, but  appears to be typical.

This however would only account for tuition increases starting sometime around 2008, it doesn’t explain why tuition has been outpacing inflation for years.  Let’s look at that again...

...and again.

The next graph shows college tuition outpacing inflation and covers a time period that ended before the large reductions in state funding took place.

All of this should make you suspicious.  The decrease in state funding can only account for the increase in tuition costs over the past five years or so. It does not explain the increase from early 90's to 2007.  There’s got to be more to the story.  My red flags have gone up, and as soon as I have the time to do the research, I'll tell you what I have found.

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