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Saturday, March 31, 2012

The Cost of Going to College: Students and Parents Feel the Pinch

While many people still believe that education is one of the best investments one can make in lifetime, you should never underestimate its price especially in the continued stagnant and sluggish moving economies that face the US. Many experts say that college tuition costs continue to skyrocketing at rate that outpaces inflation by a considerable margin (http://www.ibtimes.com/articles/214426/20110915/unemployment-jobs-economy-college-graduate.htm). Yet, college graduates almost struggle like everyone else to better off their lives. Conversely, decades ago, a college education was quite inexpensive and it was almost an automatic ticket to middle class life style but today dynamics are not certain given the economic uncertainty.

Alluding to a catchphrase “Planning for college, planning for debt” many people have even gone beyond questioning whether going to college worthwhile investment. According to the book “Academically Adrift: Limited Learning on College Campuses” 45% of college US college students exhibit no significant gains in learning after two years in college. This shows that it is equally imperative to further education to make change but at what cost? For instance, Paul Davidson, in USA Today (http://www.usatoday.com/money/economy/employment/2010-12-06-collegegrads06_ST_N.htm) reports that unemployment rate for college grads is highest since 1970. The worrisome problem is the cost of college tuition that continues to go up. In this regard, let’s discuss  the question at hand whether there is a market failure because of government involvement in education sector on one hand, or whether the situation of high costs for college would have been different should education be handled by the free market.

First, based on any other good or service production theory that require a combination of land, labor and capitals that are directed at a particular objective, some economists argue that free market can actually yield more in education at reasonable price than what is done by government. On the other hand however, government defenders enlisted various economic arguments related to market failure to dispute the idea that parents in a free market should ultimately determine what educational services are offered. Next, without the government intervention some parents would not bother sending their children to school at all. Also, I find that without government involvement, in other words providing subsidies such as financial aid and others, children from poor families would not be able to go to school. On the same note, free market defenders fight back saying that based on entrepreneurship theory, education should not be seen as best when it is left to government; rather the free market is better positioned to efficiently allocated resources that are underused in many instances and the government is not up to that task. They continued saying that the government bureaucracy is seen as the opposite of enterprise. It stifles enterprise and therefore government domination of education assures that the entrepreneurial innovation and creativity are accustomed while entrepreneurship has precondition that encompasses freedom and private property on both the supply and demand sides. http://www.thefreemanonline.org/columns/can-the-free-market-provide-public-education/

Seen in the lenses of the above contentions, one would wonder whether cost of going to college would be any different. Arnold Kling may be right when he asserted that he is not sure where the market failure would be in current education system but he recognizes that the accreditation monopoly is one market imperfection to which he pointed out. Indeed, if we look at cost of going to college in the US everyone should be concerned. In fact, expert think that after the busting of bubble in housing industry, student loans bubble is about to bust. Dennis Cauchon in US Today reports that student loans outstanding will exceed one trillion this year (http://www.usatoday.com/money/perfi/college/story/2011-10-19/student-loan-debt/50818676/1). If economy does not improve to boost hiring college students so that they can pay off their student loans what would happen or what would the government do - or again what would have the free market done differently? Surprisingly, Tony Mecia reported that even the Federal Reserve son who is medical graduate has accumulated $400,000 in debt! http://www.creditcards.com/credit-card-news/student-loan-debt-time-bomb-1279.php

Needless to say, government involvement in education is a controversial matter in which it is hard to depict whether there is a market failure associated with the high cost of student loans. If everything has gone up in price how education would have been immune?

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