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Rigging the Price for Higher Education

John S. Barry

There is no question that the cost of a college degree is increasing rapidly. An oft-cited 1996 study by the General Accounting Office found that tuition and fees at public institutions have increased some 234 percent since 1980 while family income and the general inflation rate have increased only about 80 percent over the same period.Costs at private college and universities have fared little better, increasing more than 220 percent.

Many reasons have been given for the increasing costs of higher edition. Some of the most persuasive include the increased demand for colleges degrees, higher overhead costs associated with increased faculty research, rcent reductions in state support of public institutions,and federal student aid programs that indirectly subsidize schools. These all are important factors that increase costs; however, there is another reason not. often mentioned. Colleges and universities, particularly elite private universities exercise a certain degree of monopoly power that allows them to charge each individual student a higher price than would be the case otherwise.

This article addresses each of the reasons for increased costs. However, the emphasis is placed on the last one, the monopolistic power of schools.

The Reasons for Increasing Costs

Increased value of a college degree. The most important reason college costs have escalated is that the value of a college education has increased. In fact, according to the General Accounting Office the average college graduate earned about 43 percent more than the average high school graduate did in1980. Today, the difference in earnings between these same two groups is more than 70 percent. Therefore, more and more families are finding it necessary to succeed in the,job market. At the same time，the college age population in general has increased. This increased demand for higher education has driven up the price of college just as increased demand for any commodity drives up the price if that demand is not met with a sufficiently increased supply.

Increased research at universities. Another factor affecting tuition costs at many colleges and universities is an increased emphasis on research. The prestige of a college or university today is 1

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largely a function of the publishing prowess of the institution's professors. Publishing requires research, which requires time. This means that professors are doing less teaching and more research. Fewer hours at the lectern for each professor means either that course and class selection are reduced, which forces students to take longer to finish a degree, or that more professors are required on staff, which forces the institution to spend more for salaries. Charles Sykes made this point in his excellent 1988 book, Pro/scam. Either way, the result is higher fixed or overhead costs, which typically are passed on to students and parents through higher tuition and fees.

Reduced state funding for public institutions. In addition, the current era of fiscal austerity in government has meant slower growth in state budgets, which often has meant slower growth in financial support of public universities.According to Dpartment of Education statistics,state government funds accounted for 46.3 percent of public institution revenues in 1980. By 1993 that figure had dropped to 36.8 percent. Increased tuition has been the only recourse for public institutions simultaneously faced with increased demand and shrinking state support.

Federal programs that facilitate family debt. Federal programs meant to assist students facing steep college costs have themselves added to the rise in tuition. Starting with passage of the Higher Education Act of 1965, the federal government has guaranteed student loans extended by private banks.The Student Loan Marketing Association (Sallie Mae) was established in 1972 as a government-sponsored enterprise to establish a secondary market in stu dent loans. In addition, a limited direct government loan program was estab lished in 1993. These loan programs not only facilitate indebtedness, but also boost the scale of that indebtedness by encouraging steeper tuition in creases. As Thomas Donlan recently wrote in Barron’s magazine, "The faculty and staff can vote themselves higher salaries and more resources if the only consequence is that students and parents just have to sign on the dotted line to borrow some more money." With federal debt assistance so readily available, schools have no incentive to control the costs of education.

Schools as monopolists. Increased demand, increased research, and reduced state funding all affect the "sticker" price of a college degree-the advertised tuition that a school charges. However, federal programs (and to a lesser extent private scholarships and institutional aid) that subsidize students directly affect not only the sticker price of college but also the actual price paid by a student and his family. Most students and their families do not pay the full sticker price 2

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just as few people pay the full sticker price for a new automobile. In fact, thanks to subsidized loans, institutional scholarships, state subsidies, and federal grants, schools can usually get away with charging each student a different price. Thus, the same education typically costs every student a different amount.

The ability to charge different students different prices is known in economic terms as price discrimination. Only firms with monopolistic power are able to engage in price discrimination. The result of price discrimination is that colleges are able to charge each student exactly as much as he or she is willing to pay. While this may seem fair and financial aid is often touted as "leveling the playing field," the fact is that price discrimination rarely ben efits any consumers, even those with low incomes. To understand this important first to understand the basis of every economic transaction takes place in the marketplace.

Everyone who takes part in any economic transaction does so because he believes he will be better off after the deal than he before. Why otherwise should engage in the trade? For example, if you, the student, decide a semester of classes at a particular school for$10,000 then decision that at present that semester of classes is worth more to you than holding on to the$10,000. If this were not the case then you would be better off holding on to the cash or making another purchase. The extra value you receive from that transaction-above and beyond the$10,000 paid-is known as your consumer surplus.

The university is making exactly the same calculation on the other side of the deal.If the transaction transpires then the school has obviously decided that the$10,000 in cash is more valuable than not spending the time and resources to offer the classes. The excess value on this side of the ledger is known in economic terms as producer surplus. This example helps illustrate that a transaction will transpire only when both the purchaser and the seller receive some surplus value from the deal and conversely, an economic trans action will always occur if there is a surplus to be gained by both the consumer and the producer.

Of course, the actual amount of surplus enjoyed by the consumer or producer is difficult if not impossible to measure in most individual market transactions. However, it generally is true that a consumer will receive a greater surplus in a competitive market (one served by many producers) ,than in a monopolistic market (one serverd by a small number of producers) and a prducer will enjoy a larger surplus in a monopolistic market. This is because in a competitive 3

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market the consumer can switch from one producer to another if he is unhappy with the level of surplus he is receiving. Competition among producers lowers prices and thus increases consumer surplus at the expense of producer surplus. Firms that have monopolistic power, however, need not compete with other producers as much and are able to retain a larger surplus for themselves. In short, monopolistic producers have the luxury of determining exactly how much an individual will pay for their services and charging precisely that amount. Consumers have little choice but to pay the monopolist's price.

What, then, is the lesson for higher education? Colleges and universities have greater monopolistic power today than ever before. This fact came to the forefront in 1991 when a group of Ivy League schools were investigated by the Department of justice for collusion in setting their tuition prices. In short, these schools agreed that they would no longer offer merit-based scholarships and would offer financial aid on the basis of need only. Thus, the schools involved agreed to end economic competition for talented students. The Department of justice broke up the Ivy League cartel. However, this has not put an end to the exercise of monopolistic power by schools of higher learning.

In fact, the power of the monopoly has spread beyond a small number of elite institutions and has been widely adopted by more ordinary colleges and universities. In part, this expansion is attributable to a failure to meet the increased demand for higher education with a commensurate increase in supply. It is difficult to build a new college or university. And so the same number of schools is serving an increasing number of students. This will eventually even out as new colleges are created and gain a reputation in the marketplace, but that will take time.

More directly and concern is that federal student aid has enabled monopolistic by schools. Colleges and universities are able to increase the sticker price beyond the reach of most students and then reduce the actual price charged individual students by offering them various bundles of financial aid. Thus, each student is offered a different price that matches almost exactly what he or she is willing to pay. The result is that the student's (consumer) surplus is decreased and the school's (producer) surplus is increased. In the end, students will benefit less from the education because colleges and universities have captured more of their consumer surplus. This"captured consumer surplus" may be a greater percentage of the family's income than would have been paid under competitive circumstances. Or, it may mean that the student receives a lower-value 4

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education (from his or her perspective). For example. the student may have to endure large class sizes or more graduate student led classes.

Additional producer surplus means that schools may engage in activities that would not be possible in a competitive market. For example, schools may be able to operate academic programs that advance a certain political agenda favored by the school's administrators even if that agenda has been discredited in the real world. The existence of an educational monopoly may thus help explain why so many schools continue to preach the benefits of communism despite that political and economic system's complete failure in the former Soviet Union. Similarly, unreal are the lavish remuneration and perquisites that schools offer certain administrators and tenured faculty. In a less manipulated system,competition would discourage such excesses. All of these activities benefit the school establishment at the expense of students. Despite the obvious fact that more students will be worseof given the monopolistic power of universities, some believe that a system of tiign sticker price and redistributive financial aid is socially beneficial because it helps those students from low income families. However appealing this may sound, it is simply untrue. Remember that the nature of any monopoly (in this case colleges and universities) is to reduce the consumer surplus of all customers not just the wealthy. This hypothesis has been borne out by the data. David C. Rose and Robert L. Sorensen in a 1992 article in the Southern Economic Journal found “that while institutions that appear to inf late their tuition do make larger aid awards, their awards are not large enough to reduce the average net price paid by needy students.” What is more, the University of St. Louis economists found that revenues from high tuition rates are actually expended on increased administrative overhead, faculty salaries, and stipends for graduate students, rather than lower tuition costs for needy students. Again, the beneficiary of monopoly power is the school and not student.

Implications and Conclusions

Most of the factors driving up college costs are natural market forces and, left to themselves, they will produce the most efficient and socially beneficial outcome. The value of a college degree that has led to increased demand for higher education eventually will be met by increased supply. When that happens we can expect to see tuition prices fall naturally.

Similarly, an overemphasis by universities on research will be corrected as students seek out 5

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schools focused on teaching. Those universities that have forsaken students increased class size, increased tuition or reduced professorial teaching will see their enrollment fall off and shift to schools that focus on the students. As this happens reach universities will either have to return to teaching (which would reduce costs) or lower their tuition to attract more students.

The drop in state subsidies to colleges is the result of taxpayer desire for greater fiscal restraint. Depending on one's view this may or may not be a problem. In either case the issues involved are too great to be covered here. It is enough to say that the residents of each state must decide for themselves their own priorities and where the cost of public higher education fits among these priorities.

What's left then is federal student aid and the monopolistic power it grants to colleges and universities. Unlike the other factors affecting higher education costs, federal subsidies will not correct themselves, will not lead to an efficient and socially beneficial outcome, and-in the end-will hurt far more students than they will help. It is ironic that the American academy, typically the loudest voice against "capitalist excess" and an eager supporter of egalitarianism, shamelessly raises prices and otherwise profits from monopolistic lobbies in Washington as hard or harder than anyone, because the redistribuyive policies of an activist govtrnment benefit everyone in the higher education establishment. Everyone, that is, except the student.

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高等教育的成本控制

JOHN S.BARRY

高校教育成本正在快速增长，这是毫无疑问的。19xx年会计研究中心的一份报告中指出从19xx年至今公共学费和费用已经增长了234%，但是家庭收入和通货膨胀率在相同时期只增长了80%。私立学校和大学的费用要好一些，大概增长了220%。

高等教育成本增加有很多原因。其中最有说服力的原因包括对大学学位需求的增长，教职员研究费用的增加，政府对教育支持的减少，以及联邦学生援助计划给与学校的津贴减少等，这些都是成本增加的重要原因。但是还有一些没有经常被提到的原因，就是学院和大学尤其是重点私立大学，拥有强大的力量要求他的学生给付高额的费用。

本文将讨论高等教育成本提高的一些原因，但是对高校垄断手段的分析放在最后。

一、成本增长的原因

1．大学学位价值的增长

上大学的费用不断攀升的最重要的原因是大学教育价值的增加。事实上，根据会计研究中心的报告，在19xx年，大学毕业生的收入比高中毕业生多43%。现在，这两个不同群体的收入已相差70%。因此，越来越多的家庭认为送他们的孩子去上大学时必须的。只有这样他们以后才会有一个较好的就业机会。同时，能够上大学的人数增加了。对高等教育需求的增长正如对任何商品需求的增长，如果供不应求就会导致价格的上涨。

2．大学研究的增加

影响学费的另一个原因在于许多学院和大学在研究经费方面的增加。今天一个学院或大学的声望很大程度上取决于学校教师的出版能力。出版取决于研究并且需要时间。这就意味着教师将会减少教学而增加研究。教师授课时间的减少就意味着课程和课程选择的减少。这就要求学生花更长的的时间去完成学业，或者增加更多的老师，这样学校就要给付更多的薪水。Charles Sykes 在他19xx年写的Profscam这本书中给出了这样的观点。不管怎样，结果都是固定成本和其他成本更高了。这些都使得学生和家长必须付出更高的学费和费用。

3．联邦政府计划增加家庭债务

联邦计划意味着使得学生不得不去面对不断增加的学费。在高等教育开始的19xx年，联邦政府还通过私人银行担保学生贷款。学生贷款市场协会作为一个政府支持的中等贷款市场在19xx年成立。另外，一个有限制的政府直接贷款项目在19xx年成立。这些贷款项 7

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目不仅仅使人们受惠，而且通过鼓励学费增长提高了负债规模。正如Donlan最近在杂志Barron中所写的，教职员可以通过投票使自己获得更多的薪金和资源，而这样做的后果是使家长和学生不得不去签字借更多的钱。联邦债务援助是如此的方便，使得学校没有控制成本的刺激。

4．学校的垄断

学校认为需求的增加，研究的增多以及政府帮助的减少都影响高校成本。但联邦援助学生的计划不仅仅影响高校成本并且是学生以及家长的实际负担。很多学生和家长不能完全负担费用就像没有家庭能够完全负担一辆新车的价格。事实上，应该感谢贷款的帮助，奖学金制度，国家补贴和联邦补助，这些都使得学校不会因学生不同而收不同费用。相反就会导致教育相同收费却不一样。

向能力不同的学生收取不同的费用就如经济方面的价格歧视一样。只有公司垄断力量能够造成价格歧视。价格歧视的结果是导致学校对学生的管理取决于他们的经济负担能力。这虽然看似公平，因为经济援助通常被称为“水平运动场”。实际上价格歧视很难使人们尤其是低收入者受益。了解市场交易是每一个经济的基础这一点是非常重要的。

每一个参加商业交易的人都是这样的，因为他们都认为他们会比交易前更好。否则他为什么会从事贸易呢？举例来说，如果你是一个学生，你选择购花10000购买这一学期的课程，你肯定已经得出这一学期的课程比你手中的10000元现金更值钱的结论。如果不是这样你就会选择继续持有现金或购买其他商品。你从交易中获得的额外价值将会大于你付出的10000元，这就是消费者盈余。

大学方面的交易也是这样计算的。只有学校都明显的觉得拥有10000元的现金比花时间和资源授课更有价值时交易才会发生。这样多余的价值在经济上被认为是生产剩余。这个例子有助于说明一个交易只有在买方和卖方都能从这笔交易中得到一些剩余价值时才会发生。如果生产者和消费者都能获得利益那经济交易就会导致发生。

当然，在大多数人的交易市场的测量中发现生产者和消费者所享有的利益是不一样的。但是，与垄断市场相比，消费者在竞争激烈的市场将会得到更多的利益。而生产者在垄断市场能收到更多利益。因为在竞争激烈的市场中，如果消费者对于他从一家中获得的收益不满意时他可以换另一家。生产者之间的竞争会降低价格，消费者就能从生产者剩余中获得更多利益。机构拥有垄断力量，可以不用与其他生产者进行过多的竞争。机构能够从中获得很大的收益。在短时间内，垄断生产者在服务项目和收费标准方面拥有完全的决定权。消费者除了支付垄断价格没有别的选择。

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什么是高等教育？现在学院和大学拥有比以前更大的垄断力量。在1991是由司法部门对常春藤联盟学校的学费进行定价的。现在这些学校认为他们不应该再支付奖学金。他们只在需要的基础上提供财政援助。这些学校同意结束在引进优秀学生上的经济竞争。因此，司法部门解散了常春藤组织，但是这样并没有破坏高等学校的垄断力量。

事实上，学校的垄断力量已不局限于小范围的精英学府，已经扩散到一般的学院和大学。这种扩张可归咎于高等教育还不能满足社会需求。建立一座新的学院或大学是很困难的。学校还是那么多但学生增加了。虽然最终会建立新的大学并获得名声，但这需要时间。更直接更多的关心是联邦学生援助计划将会使学校垄断力量加强。学院和大学都能使标价增长超过大多数学生所能承受的。学校通过提供各种经济援助降低个别学生对实际价格的指控。因此每个学生按照他们愿意支付的价格支付费用。结果使得学生的收益降低而学校的收益增加。最后，由于学校从他的消费者中获得了更多得利益，所以学生从学习中获得的利益就减少了。这种消费者盈余可能是家庭收入中的一部分，但这要比在市场竞争环境下支付的多。或者他意味着学生将从教育中获得一个很小的价值。举例来说，学生不得不忍受大班授课或更多的研究生授课。

额外的生产者剩余使得学校能够从事在激烈竞争市场中不可能从事的活动。举个例子，学校能够通过管理者在某些政治议程提出以前展开学术研究，即使这些议程在真实世界中受到怀疑。教育垄断的存在可以帮助解释为什么在前苏联尽管政治和经济制度彻底失败的情况下仍有很多学校继续宣传共产主义的好处。同样不实在的是学校提供给某些管理者和终生教职人员奢侈的报酬和额外的津贴。在一个较低的操作系统，竞争将制止这样的情况。所有这些牺牲学生的活动有助于学校的创立。

尽管学生被学校垄断的情况更糟了，仍有一些人认为一个较高的价目表系统和再分配财政援助对社会是有益的。因为它能帮助一些收入较低家庭的学生。这些听起来可能吸引人，但它不真实。我们应该记住任何垄断的本质都是减少所有消费者的收益而不仅仅是富人。

这个假设已被数据证实。David C .Rose和Robert L.Sprensen在19xx年的文章Southern Economic Journal 中指出机关通过扩大奖项援助项目来扩充自己的费用。他们没有足够的奖项去减少贫困学生必须缴纳的费用。更多的是，St. Louis 经济大学指出高学费率的收入更多的是用在了行政费用、教师工资、研究生薪金的过度增长，而不是用于对贫困学生的补助。还有，垄断力量的受益者是学校而不是学生。

二、含义和结论

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大学费用的大部分驱动因素是天然的市场力量，他们将提供最有效并对社会有益的结果。大学学历价值的增长导致了对高等教育需求的增加，这最终将会使供应增加。到那时我们将会看见费用降低。

同样的，对于学校过分强调的研究学生可以找学校集中教学。那些通过扩大班级规模、增加费用、减少授课的学校的招生将会减少，学生将转移流失。到那时，研究性大学就会重新重视教学或降低更多学生的费用。

国家对学校的补贴的减少是学校渴望更多财政控制的结果。有人会认为这不是问题。事实上这里涉及的问题太大。每个国家的居民都有他们的优先权而那些公共高等教育费用就包含在这些优先权中。

学院和大学就剩下联邦援助计划和垄断权力。不同于其他影响高等教育成本的因素，联邦政府补贴不会改正自己，也不会给社会带来一个高效的有益的结果。到最后可能给学生带来更大的伤害。具有讽刺意味的是美国学院，他们既是反对资本剩余的最大声音和平均主义的热心支持者，也无耻的提高价格并从垄断中获利。这来自华盛顿的垄断学院一点也不意外，积极的再分配政策使得除了学生之外的每一个人都能在高等教育中受益。 10