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Sunday, February 26, 2012

Why College Aid makes College More Expensive?

An interesting article. Let’s forget how expensive college is or is it worth the cost today. That is not the point of this post.

This is a discussion about the unintended consequences of subsidies. Politicians can’t help themselves when prices move against their voters so they always want to subsidize their voters – especially for “important” things like college education, solar energy and ethanol.

Unfortunately the subsidies not only fail to work they usually make the problem worse.

In the case of subsidized college education the subsides given via college loans allow the college institutions including their faculty and administration to raise their prices (and salaries) to adjust for the subsidies. College presidents and professors end up with this largess  not college students.

Most college students only consider where the cash is coming from (or is it?) in considering their college options. Very little attention goes into how much debt will be accumulated and how expensive it will eventually be to pay off the college loans. If a 45 year old politician thinks this way what are the chances that 18 year old high school graduates will think any more maturely?

And once subsidies are established (even when they are called temporary) they are almost impossible to eliminate. The reason is the beneficiaries of subsidies fight much harder to keep them that the average tax payer that only loses a few dollars a month to foot the bill.

3 comments:

Military College said...

Subsidies can work if the money is applied towards lowering tuition instead of increasing salaries.

Irene_J said...

I know there are many other factors at play that determine college tuition. But I would like to say that this small part of tuition should rise with economic growth if priced efficiently. And professors work very hard. They work as hard as they can, but that they cannot increase output as fast as increases in macro-scale efficiency. Georgetown TX Towing

Jerry White said...

Unintended consequences and the seen and unseen....."The results of taxation--as of robbery, burglary and other forms of confiscation of property--are seen mostly in what is done with the resources taken, who gets it and so on. The resulting absence of resources, produced by these acts--including by taxation--are much more difficult to depict." Frederick Bastiat