The Cost of College Bucks The Principle of Supply & Demand
Friday, October 27, 2006SUSIE GHARIB: If you're a parent with a child heading for college, get ready to dig deep -- really deep-- into your wallet. The cost of a college education has skyrocketed in the last five years, and that trend shows no signs of abating. As Washington bureau chief Darren Gersh reports, it's an indication of an unusual economic situation: a business that has few incentives to keep prices in check.
DARREN GERSH, NIGHTLY BUSINESS REPORT CORRESPONDENT: In freshman economics, college students learn when prices rise, demand goes down and companies are forced to become more efficient. But analyst Kevin Carey says that's not how college tuition works.
KEVIN CAREY, RESEARCHER, EDUCATION SECTOR: You really don't have the danger in the core segment of not-for-profit higher education that someone else is going to come in, be more efficient and take away your customers and so efficiency is hard and they can avoid it, so they do.
GERSH: After adjusting for inflation, the price of a public college education over the last five years rose an astounding 35 percent. Carey says the influential college rankings put out by "U.S. News & World Report" are part of the problem because they reward colleges that spend the most per student.
CAREY: If you were a university that could figure out how to cut costs by 20 percent, spend less money, be more efficient and with no reduction in quality, your ranking would go down.
GERSH: But "U.S. News & World Report" executive editor Brian Kelly disputes that, arguing the rankings measure resources that matter.
BRIAN KELLY, EXEC. EDITOR, U.S. NEWS & WORLD REPORT: We're not the problem. The rankings look at academic spending -- spending that goes towards educational programs, faculty salaries, student support services, placement services, those sort of things. We are not giving people credit for building a new gym or having two salad bars in the cafeteria.
GERSH: Kelly says college costs are rising because there's so much demand to educate the children of the baby boom generation.
KELLY: I think you are going to see in a few years, when the demographic bubble begins to diminish, that they're going to have fewer customers and you will see a lot more price competition. I think a lot of schools probably are living in a dream world right now.
GERSH: But college presidents remind critics higher education is labor intensive and cutting costs can lead to lecture halls overflowing with students.
CATHERINE BOND HILL, PRESIDENT, VASSAR COLLEGE: When I look at my 20 years in private education, I could cut the costs, but I would reduce the quality of what we're doing.
GERSH: And even after taking into account the sticker shock, a college education is still a smart buy. The Census Bureau reports, on average, a college grad earns $23,000 a year than non-grads. Darren Gersh, NIGHTLY BUSINESS REPORT, Washington.
