Rigging the Price for Higher EducationJohn S. BarryThere is no question that the cost of a college degree is increasing rapidly. An oft-cited 1996 study by the General Accounting Office found that tuition and fees at public institutions have increased some 234 percent since 1980 while family income and the general inflation rate have increased only about 80 percent over the same period.Costs at private college and universities have fared little better, increasing more than 220 percent.Many reasons have been given for the increasing costs of higher edition. Some of the most persuasive include the increased demand for colleges degrees, higher overhead costs associated with increased faculty research, rcent reductions in state support of public institutions,and federal student aid programs that indirectly subsidize schools. These all are important factors that increase costs; however, there is another reason not. often mentioned. Colleges and universities, particularly elite private universities exercise a certain degree of monopoly power that allows them to charge each individual student a higher price than would be the case otherwise.This article addresses each of the reasons for increased costs. However, the emphasis is placed on the last one, the monopolistic power of schools.The Reasons for Increasing CostsIncreased value of a college degree. The most important reason college costs have escalated is that the value of a college education has increased. In fact, according to the General Accounting Office the average college graduate earned about 43 percent more than the average high school graduate did in1980. Today, the difference in earnings between these same two groups is more than 70 percent. Therefore, more and more families are finding it necessary to succeed in the,job market. At the same time，the college age population in general has increased. This increased demand for higher education has driven up the price of college just as increased demand for any commodity drives up the price if that demand is not met with a sufficiently increased supply. Increased research at universities. Another factor affecting tuition costs at many colleges and universities is an increased emphasis on research. The prestige of a college or university today islargely a function of the publishing prowess of the institution's professors. Publishing requires research, which requires time. This means that professors are doing less teaching and more research. Fewer hours at the lectern for each professor means either that course and class selection are reduced, which forces students to take longer to finish a degree, or that more professors are required on staff, which forces the institution to spend more for salaries. Charles Sykes made this point in his excellent 1988 book, Pro/scam. Either way, the result is higher fixed or overhead costs, which typically are passed on to students and parents through higher tuition and fees.Reduced state funding for public institutions. In addition, the current era of fiscal austerity in government has meant slower growth in state budgets, which often has meant slower growth in financial support of public universities.According to Dpartment of Education statistics,state government funds accounted for 46.3 percent of public institution revenues in 1980. By 1993 that figure had dropped to 36.8 percent. Increased tuition has been the only recourse for public institutions simultaneously faced with increased demand and shrinking state support.Federal programs that facilitate family debt. Federal programs meant to assist students facing steep college costs have themselves added to the rise in tuition. Starting with passage of the Higher Education Act of 1965, the federal government has guaranteed student loans extended by private banks.The Student Loan Marketing Association (Sallie Mae) was established in 1972 as a government-sponsored enterprise to establish a secondary market in stu dent loans. In addition, a limited direct government loan program was estab lished in 1993. These loan programs not only facilitate indebtedness, but also boost the scale of that indebtedness by encouraging steeper tuition in creases. As Thomas Donlan recently wrote in Barron’s magazine, "The fac ulty and staff can vote themselves higher salaries and more resources if the only consequence is that students and parents just have to sign on the dotted line to borrow some more money." With federal debt assistance so readily available, schools have no incentive to control the costs of education. Schools as monopolists. Increased demand, increased research, and reduced state funding all affect the "sticker" price of a college degree-the advertised tuition that a school charges. However, federal programs (and to a lesser extent private scholarships and institutional aid) that subsidize students directly affect not only the sticker price of college but also the actual price paid by a student and his family. Most students and their families do not pay the full sticker pricejust as few people pay the full sticker price for a new automobile. In fact, thanks to subsidized loans, institutional scholarships, state subsidies, and federal grants, schools can usually get away with charging each student a different price. Thus, the same education typically costs every student a different amount.The ability to charge different students different prices is known in economic terms as price discrimination. Only firms with monopolistic power are able to engage in price discrimination. The result of price discrimination is that colleges are able to charge each student exactly as much as he or she is willing to pay. While this may seem fair and financial aid is often touted as "leveling the playing field," the fact is that price discrimination rarely ben efits any consumers, even those with low incomes. To understand this important first to understand the basis of every economic transaction takes place in the marketplace.Everyone who takes part in any economic transaction does so because he believes he will be better off after the deal than he before. Why otherwise should engage in the trade? For example, if you, the student, decide a semester of classes at a particular school for$10,000 then decision that at present that semester of classes is worth more to you than holding on to the$10,000. If this were not the case then you would be better off holding on to the cash or making another purchase. The extra value you receive from that transaction-above and beyond the$10,000 paid-is known as your consumer surplus.The university is making exactly the same calculation on the other side of the deal.If the transaction transpires then the school has obviously decided that the$10,000 in cash is more valuable than not spending the time and resources to offer the classes. The excess value on this side of the ledger is known in economic terms as producer surplus. This example helps illustrate that a transaction will transpire only when both the purchaser and the seller receive some surplus value from the deal and conversely, an economic trans action will always occur if there is a surplus to be gained by both the consumer and the producer.Of course, the actual amount of surplus enjoyed by the consumer or producer is difficult if not impossible to measure in most individual market transactions. However, it generally is true that a consumer will receive a greater surplus in a competitive market (one served by many producers) ,than in a monopolistic market (one serverd by a small number of producers) and a prducer will enjoy a larger surplus in a monopolistic market. This is because in a competitivemarket the consumer can switch from one producer to another if he is unhappy with the level of surplus he is receiving. Competition among producers lowers prices and thus increases consumer surplus at the expense of producer surplus. Firms that have monopolistic power, however, need not compete with other producers as much and are able to retain a larger surplus for themselves. In short, monopolistic producers have the luxury of determining exactly how much an individual will pay for their services and charging precisely that amount. Consumers have little choice but to pay the monopolist's price.What, then, is the lesson for higher education? Colleges and universities have greater monopolistic power today than ever before. This fact came to the forefront in 1991 when a group of Ivy League schools were investigated by the Department of justice for collusion in setting their tuition prices. In short, these schools agreed that they would no longer offer merit-based scholarships and would offer financial aid on the basis of need only. Thus, the schools involved agreed to end economic competition for talented students. The Department of justice broke up the Ivy League cartel. However, this has not put an end to the exercise of monopolistic power by schools of higher learning.In fact, the power of the monopoly has spread beyond a small number of elite institutions and has been widely adopted by more ordinary colleges and universities. In part, this expansion is attributable to a failure to meet the increased demand for higher education with a commensurate increase in supply. It is difficult to build a new college or university. And so the same number of schools is serving an increasing number of students. This will eventually even out as new colleges are created and gain a reputation in the marketplace, but that will take time.More directly and concern is that federal student aid has enabled monopolistic by schools. Colleges and universities are able to increase the sticker price beyond the reach of most students and then reduce the actual price charged individual students by offering them various bundles of financial aid. Thus, each student is offered a different price that matches almost exactly what he or she is willing to pay. The result is that the student's (consumer) surplus is decreased and the school's (producer) surplus is increased. In the end, students will benefit less from the education because colleges and universities have captured more of their consumer surplus. This"captured consumer surplus" may be a greater percentage of the family's income than would have been paid under competitive circumstances. Or, it may mean that the student receives a lower-valueeducation (from his or her perspective). For example. the student may have to endure large class sizes or more graduate student led classes.Additional producer surplus means that schools may engage in activities that would not be possible in a competitive market. For example, schools may be able to operate academic programs that advance a certain political agenda favored by the school's administrators even if that agenda has been discredited in the real world. The existence of an educational monopoly may thus help explain why so many schools continue to preach the benefits of communism despite that political and economic system's complete failure in the former Soviet Union. Similarly, unreal are the lavish remuneration and perquisites that schools offer certain administrators and tenured faculty. In a less manipulated system,competition would discourage such excesses. All of these activities benefit the school establishment at the expense of students. Despite the obvious fact that more students will be worseof given the monopolistic power of universities, some believe that a system of tiign sticker price and redistributive financial aid is socially beneficial because it helps those students from low income families. However appealing this may sound, it is simply untrue. Remember that the nature of any monopoly (in this case colleges and universities) is to reduce the consumer surplus of all customers not just the wealthy. This hypothesis has been borne out by the data. David C. Rose and Robert L. Sorensen in a 1992 article in the Southern Economic Journal found “that while institutions that appear to inf late their tuition do make larger aid awards, their awards are not large enough to reduce the average net price paid by needy students.” What is more, the University of St. Louis economists found that revenues from high tuition rates are actually expended on increased administrative overhead, faculty salaries, and stipends for graduate students, rather than lower tuition costs for needy students. Again, the beneficiary of monopoly power is the school and not student.Implications and ConclusionsMost of the factors driving up college costs are natural market forces and, left to themselves, they will produce the most efficient and socially beneficial outcome. The value of a college degree that has led to increased demand for higher education eventually will be met by increased supply. When that happens we can expect to see tuition prices fall naturally.Similarly, an overemphasis by universities on research will be corrected as students seek outschools focused on teaching. Those universities that have forsaken students increased class size, increased tuition or reduced professorial teaching will see their enrollment fall off and shift to schools that focus on the students. As this happens reach universities will either have to return to teaching (which would reduce costs) or lower their tuition to attract more students.The drop in state subsidies to colleges is the result of taxpayer desire for greater fiscal restraint. Depending on one's view this may or may not be a problem. In either case the issues involved are too great to be covered here. It is enough to say that the residents of each state must decide for themselves their own priorities and where the cost of public higher education fits among these priorities.What's left then is federal student aid and the monopolistic power it grants to colleges and universities. Unlike the other factors affecting higher education costs, federal subsidies will not correct themselves, will not lead to an efficient and socially beneficial outcome, and-in the end-will hurt far more students than they will help. It is ironic that the American academy, typically the loudest voice against "capitalist excess" and an eager supporter of egalitarianism, shamelessly raises prices and otherwise profits from monopolistic lobbies in Washington as hard or harder than anyone, because the redistribuyive policies of an activist govtrnment benefit everyone in the higher education establishment. Everyone, that is, except the student.高等教育的成本控制JOHN S.BARRY 高校教育成本正在快速增长，这是毫无疑问的。
