The Economics of Education Continued

I have been breaking this portion down for readability. The last section was about how government subsidies, student loans, and other debt tools continue to make tuition rates rise. I believe this parallels some of the financing trends we see vis-a-vis Yeshiva tuition where families beg, borrow, and sometimes even steal to continue to pay ever increasing costs. The last section also examined the bundling of services and how tuition payers are told they are getting a good deal, and therefore shouldn't complain, when in fact there is no average cost of a joint product. At the grade school level, I believe Yeshiva tuition is mostly reflective of cost, but by the high school level there is certainly a bundle of products in some schools.

Continuing:

It may seem odd that college admissions directors are under heavy pressure to enroll more students, if the college are losing money on each student enrolled, as academic administrators so often claim. When Darmouth vice-president Robert Field announced that the college was accepting more transfer students, in order to bring in more revenue, the Dartmouth Review asked editorially: "How can Field make more money on new students when every time he raises tuition, he claims tuition pays for only half the cost of each student?" The probing question goes to the heart of the economic issue, and its answer depends upon incremental costs. Once a college is built and its dormitories and classroom buildings are in place, the additional or incremental costs of adding more students is relatively low, so long as their numbers do not exceed the existing capacity. Within those limits, adding more students may well bring in far more additional revenue than any additional costs they represent.

The claim by college administrators that tuition does not cover the average cost of a college education is both meaningless and misleading. It is meaningless because there is no such thing as the average cost of a joint product, and it is misleading because there is no more reason why tuitions should cover all the costs of a college than there is for magazine subscriptions to cover all the costs of producing a magazine. Advertisers often pay most of the costs of producing a magazine or newspaper, and advertisements, just as academic institutions produce both teaching and research. No one believes that magazine are doing a favor to their subscribers by offering subscriptions at prices which do not cover the average cost of producing the magazine. Nor do magazines make any such sanctimonious claims.

It is commonplace in the ordinary business transactions of the marketplace for joint products to be sold simultaneously to different groups, no one of whom pays enough to cover the total costs of the business. A professional baseball team not only sells tickets to those who enter its stadium; it also sells television and radio rights to broadcasters who cover the game, and rents out the stadium to others who use it for rock concerts, boxing matches, and other events while the team is on the road or during the off-season. If ticket prices for baseball games rose to exorbitant levels, it would be no answer to the fans to say that they were still not being charged enough to cover the total costs of the baseball club. Yet colleges and universities use this as an argument against students and their parents who complain about exorbitant tuition.

More to come, most importantly about how schools can maintain a monopoly while costs skyrockets. Extremely important to help understand why it is difficult to create alternatives within the market!