If you think health care costs are out of control, check out their comparison with college tuition–over the past twenty years, according to the Bureau of Labor Statistics, price growth of 191% for medical care and 289% for college tuition! With the growing trend in deregulation of tuition and costs among the nation’s top state-supported institutions, many blame this explosion, at least recently, on what they call this “student tax” as a way of shifting costs from stingy governments to the education consumers. Patricia Kilday Hart of Texas Monthly magazine shares this view, and feels that worthy students from moderate income families are being squeezed out of an opportunity for an excellent education at the top tier schools. Not so, says Richard Vedder in The American Enterprise, who writes that colleges and universities are increasingly like hospitals and doctors—they depend largely, directly or indirectly, on third parties for payment of their bills. So when government subsidizes low-interest student loans, it increases the demand for higher education at existing tuition levels, leading to higher prices as well as more kids going to college. This third party payment system makes the customer less sensitive to price, allowing the schools to raise prices dramatically without adverse enrollment effects.
I have previously (August 2003) suggested that we should be making bold moves toward marketizing the system, with market-based tuition as a good start, but also by spinning off entire departments and/or colleges of university systems as stand-alone schools, with certain services provided by the “parent” institution on a contract basis. Vedder has an even better idea: states should provide their support in the form of vouchers or scholarships to the students directly, which could be made both progressive and performance-based. Progressive in that the vouchers would vary inversely with family income, more to the needy than the affluent, and performance-based in that the voucher amount could be tied to student performance, more to the high achiever than the laggard. Over time, these changes would produce cost efficiencies and a much better allocation of resources based on customer preferences. (As a useful by-product, I wonder if the likes of Ward Churchill would be able to keep their jobs in such a system.)