Why does college cost so much?

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When debt is easily taken on to buy an item (education, books, etc.) — without regard to whether that purchase will create an income stream to repay the principal (original borrowed amount) plus interest on the debt — the price of that item is temporarily inflated until the debt burden constrains future purchasing of that item. An “easy-debt” environment creates little incentive for schools to compete for students (competition forces prices down) — instead prices rise, more debt is borrowed to pay, prices rise again, again more debt is borrowed to pay, etc.

In a competitive environment it’s likely that unproductive schools would close and others may adjust the tuition cost based on the degree being pursued (cost for the degree forced down to the point where the income stream generated from the degree is sufficient to repay the principal and interest of the debt).

Rising Cost of college:

Price change for college tuition & books 1996-2016

Price change for college back to 1980

Rising student debt:

Growth of student debt vs. income stream generated

 




 

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