STUDENT 1: My student debt will, most likely,
by the time I graduate, be around $80,000 at minimum. STUDENT 2: Itís really complicated. I just
donít understand how we have to pay so much money to get an education, especially in America. STUDENT 3: Itís overwhelming. I’m not sure
what Iím going to do with my major yet, so it’s kind of crazy thinking about paying off
all that debt but somehow itíll disappear. PROFESSOR LIN: College is getting increasingly
expensive. Tuition at U.S. universities has risen faster than inflation in every year
since 1981. So why is the price of college rising so quickly? It’s basic supply and demand.
Weíre seeing enormous increases in the demand for higher education, and universities can
respond in two ways: increasing the supply by accepting more students or increasing the
tuition. Since most colleges can’t keep up by increasing enrollment, tuitions must rise. To understand what’s happening, we need to
examine what’s been driving that demand. There are two main factors. First of all, the payoff
from a college degree has been growing over time. In 1980 college graduates earned 50
percent more than high school graduates. In 2008 they earned over 90 percent more. In
addition, a college degree increases your chances of finding a job, even in a sluggish
economy. In the May 2012 employment report, the unemployment rate for high school graduates
rose to 8.1 percent while the unemployment rate for college graduates fell to 3.9 percent.
So it should be no surprise then that young people today are pursuing higher education
in larger numbers than ever before. But there’s more to the story. STUDENT 4: Itís kind of something that I
don’t understand. You know, costs are constantly rising. I mean I guess it has to do withó
Every price rises, every cost rises, but college costs rise so exponentially that I think that
it just doesn’t equate. PROFESSOR LIN: There’s a second major reason
for the increase in demand, and this one is the result of public policy. To make colleges
more affordable, federal and state governments have been giving subsidies to studentsómost
notably through government-backed student loans, but also through grants and tax credits.
In fact, as prices rise there’s political pressure to increase these subsidies. What many students don’t realize is these
subsidies actually lead to higher tuitions. When you subsidize something, it’s cheaper
for people to consume. So people consume more of it and demand rises. So while students
may want more subsidies to make college more affordable, ironically more subsidies actually
make college less affordable, because they fuel the demand thatís driving tuitions upward.
Instead of being helped by the subsidies, students are just taking on more debt than
ever before. And this rising demand also drives up prices
in another way. Because colleges have no trouble filling seats, even with record-high tuitions,
theyíve felt no pressure to cut costs. Instead, colleges have spent more. Fancy student centers,
dining halls, athletic facilities, and many more administrative staff than ever before:
these additions make college more expensive without increasing the value of the diploma.
The rising price of college education is a heavy burden for young people and their families.
Fortunately, because we know the main reasons behind rising tuitionsópromises of higher
wages, and increased subsidiesówe can start to look for solutions.