Perverse Incentives Drive Up Tuition and Operating Costs in Higher Education

College education does not come cheap these days. Year after year, colleges and universities increase their tuition fees without offering a reasonable explanation to those who foot the bill. Parents lament over how they can keep up with these out-of-control financial demands imposed on them by university administrators who seem unaccountable for the decisions they make. Ironically, though, an increase in tuition fees also induces an increase in college expenditures: the higher the revenue is, the higher the operating costs become. Robert Martin, in this illuminating piece published by the Pope Center, explains why: perverse incentives, ranging from the nonprofit status of universities to competing objectives to manner of governance, inform the decisions and actions of university administrators in an environment seemingly lacking in oversight and transparency. It’s worth reading.

On this same topic, James Otteson, professor of philosophy at Georgetown University, points us to today’s WSJ article entitled,Weighing Price and Value When Picking a College. In a blog he wrote for HigherEdReform@googlegroups.com (you must become a member of this group to read the discussions) , he adds the following to the list of factors behind higher education costs:

One of the main reasons the cost of higher education has continued to increase is that it is partially insulated from market pressures by massive state subsidy. That subsidy comes in several forms: directly, as state budget transfers, as well as indirectly via research and other grants and student loans. The possibly changing parental attitudes that this article mentions–going from “do whatever it takes to pay for your child to go the best school she gets into” to “review the available choices and ask what gives you the best value relative to your ends”–is eminently laudable but will have limited effect if the government merely increases aid.

Otteson delivered the Keynote Adress at  the Teach Freedom Initiative conference in March, read and listen here.

This entry was posted on Wednesday, July 15th, 2009 at 11:34 AM. It is filed under Teach Freedom Initiative, U.S. & Canada and tagged with education costs, education subsidy, Georgetwon University, High Education, James Otteson, Pope Center, Wall Street Journal. You can follow any responses to this entry through the RSS 2.0 feed.