Kevin Carey, research and policy manager at Education Sector, writes in the Chronicles of Higher Education:
The fact that increased prices go hand in hand with more-selective admissions is all the better, since that leads to increased status, wealthier alumni, and higher rankings in U.S. News & World Report. In a normal market, businesses can cut prices to attract more customers. In the higher-education market, colleges have found that cutting tuition reduces demand, because the lower price signals lower prestige — and thus value — to prospective students. Ten percent of the U.S. News rankings are based on spending per student, which means that a college that became more efficient and passed part of the savings on to its customers in the form of reduced prices would see its status decline. Unsurprisingly, that hardly ever happens.
He goes on to argue that we need to ‘sever the iron bond between price and perceived quality’. A noble goal, but one that is sure to (and already is) meet strong resistance from the very powerful Washington higher-education lobby. For more on this, economist Robert Whaples working for the Teaching Company gives a short introduction on the economics of University tuition…and why it has gotten so high, see here. Just one more reason why I continue to believe that increasing university subsidies does not help the poor. See more here.