Perverse incentives drive the cost of US uni education

Zero incentives for colleges to lower fees.

Cheap loans drive fees. Obama contemplates bailout for student loans: the taxpayers will pick up the bill (again). Inflated estimates of the financial benefits of a college education: Parents under pressure to provide but 40% of students don’t complete in six years. Etc.

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24 Responses to Perverse incentives drive the cost of US uni education

  1. Milton Von Smith

    Lucky we’re not giving cheap loans in Australia and letting unis charge whatever they want and then putting taxpayers on the hook when the loans aren’t repaid.

    Oh, wait….

  2. Notafan

    I cannot understand the seeming necessity in the US to live on campus, it must be a significant proportion of the cost of tertiary education and yet in Australia most are able to travel to university from their parents’ home.
    Rural students obviously an exception.
    Does the US have small numbers of supersize colleges away from major population centres?

  3. Notafan

    A member of my family shopped around for a masters and made a decision based on price, length of course and physical location.
    Having to pay upfront makes a big difference.

  4. Zatara

    “Does the US have small numbers of supersize colleges away from major population centres?”

    In a word, yes.

    It is thought that letting the sprouts get “socialized” outside the home but in a somewhat controlled environment is a good thing.

    College is also seen as a right of passage in which the kids leave the nest hopefully to return only at Christmas to thank mum and dad for all the sacrifices made for their education…

  5. Poor Old Rafe

    A good onsite college can give access to all the best things that a university education used to offer – like the opportunity to make new friends from all walks of life and all parts of the world and the ability to participate in the clubs, societies and sports that commuter students don’t get. That was my story in Hytten Hall at the Uni of Tas 1963-66.

    On the other hand many colleges are over-priced crap and many of the surviving clubs and societies have degenerated into rorts to get discount beer and travel at the expense of the student body at large.

  6. Notafan

    Okay Rafe that I understand but if the parents can’t or won’t pay and the student had to, I think they would opt for the commuter model. College life in the US these days sounds little different to night club hooking up.

  7. I moved interstate to University, my parents didn’t want me wasting precious studying time having to commute or work, (or waste time playing with a car), so they insisted I live on campus.

    Living on campus was great fun and not having to commute was excellent. Back then the tuition was free, I lived on ~$60 a week and worked during vacations.

    I do feel an obligation to do the same for mine.

  8. Tel

    Cheap loans drive fees.

    A example of the Cantillon Effect in action.

  9. Tel

    Lucky we’re not giving cheap loans in Australia and letting unis charge whatever they want and then putting taxpayers on the hook when the loans aren’t repaid.

    That’s why I was pushing for universities to share at least some of the risk… part of the payment from government to university should be withheld until after the loan is repaid. Also, some sort of co-pay would be good, so the HECS loan should not be for the full amount, students have to find something upfront, even if only 5% of the total. Enough to have some immediate economic incentive.

  10. Token

    Living on campus was great fun and not having to commute was excellent

    One suspects the conditions you lived don’t match the resort style lifestyle which seems to be the norm in the US.

    It has been noted a substantial portion of US tuition fees are actually steep accommodation charges for newish facilities. There is no economic benefit having debt loaded up with these services which don’t add any value to productivity.

    When the kids & parents get thequote they are bundled together.

  11. Token

    …part of the payment from government to university should be withheld until after the loan is repaid.

    Good plan as a concept, most industries benefit by forcing all contribors to share the credit risk. It is a huge pain to ensure compliance. This is why such schemes are never properly implemented & get discontinued in a simplification restructure.

  12. Tel

    It is a huge pain to ensure compliance.

    Well a co-payment is pretty easy, just don’t lend out the full amount. It would stand out a mile away if the universities attempted to diddle it with last-minute discounts or rebates. The government already has access to intricate details of our financial affairs, checking the price of a university entrance cannot possibly be high on the difficulty scale (if that’s too hard, then I can understand why the LDP has so little faith in our government being able to defend the borders).

    The final payment to the university depends on two pieces of information: knowing when the loan is paid off, and knowing which university was paid in the first place. Well HECS debts are already centrally tracked by the ATO, and they already give you some note to say you have paid off your HECS (you need to be able to declare to your employer whether it is paid or not). Job’s already done. The only remaining bit is a link back to the original transaction where the government paid the university fees in the first place.

    This must be recorded somewhere because otherwise how to they create the HECS debt in the first place?

    Imagine if a bank was operating a home loan account but said “we can’t figure out how much he originally borrowed”, well duh, just go to the first transaction in that account!

  13. notafan

    So we don’t actually know what the tuition component of a US college eduction is ? And what is a US college education? I get the impression it is often not vocational ie pre ‘something’ and lots of liberal arts involved.
    It sounds a bit like an expensive long long summer camp for adolescents.
    The left are using the US student loans argument as a defence against the Pyne changes when they are basically comparing boarding school/camp fees with a tuition fee with only tuition fees.
    Don’t forget Australian students are often entitled to welfare payments while they study, do US students get welfare to study?
    How about some enterprising person creating a uni course fees comparison website a bit like the health insurance one ?
    Not the government.

  14. notafan- this summarizes where college is being radically reformed in the US. http://www.invisibleserfscollar.com/college-ready-as-a-goal-of-k-12-is-not-helpful-if-first-you-gut-the-historic-purpose-of-college/ Because it ties into UNESCO’s Bologna Process transformation of higher ed globally, this is not just a US problem.

    Secondly, most of the elite to 2nd tier private colleges and universities in the US are being pressured to make college free for students under a certain income level-about $66,000 US, especially if they are inner city and minority. So you have kids whose parents can pay from annual income, kids going free to get diversity, and parents in the middle taking on debt or not saving for retirement or borrowing against housing. The split is about 70/30 on tuition vs room and board.

    Yes, the student loan forgiveness allows the problem of people borrowing to go to school because they can get living expenses and live better than minimum wage and then just repay a portion. The original legislation tied to the Obamacare bill has forgiveness at 10 years if you work for govt or nonprofits or 20 years in the private sector. Once again the part of the economy bearing all the burden is hit the hardest.

  15. notafan

    So US college is for the following to

    grow…… engaged…. feelings… and relating with others

    And the role of the family?
    Italy was full of US college students, who seems to spend most of their time either drunk or hungover and I met a Canadian boy who was studying in Freiburg Germany doing German and history, what a lurk!
    I say pass on US colleges

  16. Diogenes

    @notafan
    The so called “Melbourne” model which some unis are starting to adopt are like this. The B(whatever) is useless on its own & all the truly vocational stuff happens in the Masters degree.

    Currently the system is set up so a child decides at 15 what area they want to work in. They pick stage 5 subjects (thats years 9 & 10) so that they have pre knowledge for stage 6 (thats years 11 & 12) so they 1) get a high enough ATAR to enter the course that will get them degree they want to work in the area and 2) have the prerequisites for the course and/or 3) get some knowledge of what they will be doing.

    In one sense it its is bad – extra time & extra dollars, but on the other hand with fewer B(Whatever) degrees the prerequisites and ATARs assume less importance – in essence they widen the filter at 1st year – then the GPA at uni becomes the filter for later years.

    Two examples why this may suit some better -
    I have an ex student who got an an ATAR of 53 & managed to get into an IT degree (just) – struggled in first semester at uni & now 2 years later he is achieving HDs – OTOH that year’s school dux got an ATAR of 99 – entered Medicine & had a nervous breakdown in the middle of 2nd semester of his first year.

    No 1 son needed a unit of something for a BA (he was doing a dual BA/BSc), randomly selected Russian, and now has an honours in Russian & is now studying a Masters in Russian Interpreting

    A counter example – a niece is studying Nursing & spent 6 months in the the US on a student exchange at UCLA . As she could not find any units she could count towards a credit here , she picked “Desert Walking”, Walking (which ended at the campus Pizza shop), Yoga and something else totally nonsensical that would have counted towards a Bachelors degree had she remained there.

  17. Tel

    Robin: excellent website.

  18. notafan

    A family member did the ‘Melbourne’ model, it is what you make of it and you can pick subjects from Commerce and Law. I’m pretty happy that was the right choice, for that child, who then did a masters btw.

    But if college in the US has a focus on social skills which should have been learnt at kindergarten what is the point?
    My friend in the states who had a brother who literally killed himself working to pay for his kids college ;son did well ,daughter changed her sexual preference and and never once make use of the degree, so she will pay for vocational training for her kids and that is all.
    All US college seems to be doing is encouraging people to take not responsibility for themselves.
    My point is we can well ignore the leftie narrative about the evil US system because they have a different raison d’etre.
    I have no problem with kids making life decisions at 15, they can change their mind if they want to, not to mention this is probably a second generation of a first world ‘problem’.

  19. johanna

    Living in college has a lot going for it. I went to the ANU as an undergraduate, and most people there were not from Canberra, and knew no-one. It was a great way to make friends and develop some sort of anchor in an alien environment, as most of us (apart from boarding school students) had never been away from home before. I am still friends with people I met there, decades ago.

    It also meant that you didn’t have to have a car, or spend hours commuting.

    Much later, I did my Master’s part-time. Our classes were in the late afternoon or early evening. We almost all had jobs and families. We had no involvement in campus activities, or even with each other. Everyone scuttled off after lectures, no lunch at the cafeteria or drinkies in the bar afterwards. Luckily, I met a couple of people who were in my line of work and we became friends. But it was otherwise a pretty lonely life for the students in my classes.

    So, while paying for living in college might seem to be wasteful, I don’t think that it is, if it can be afforded. Commuter students at big universities could easily spend 3-4 years there without making a single friend. Even working flipping burgers, your chances are better than that.

  20. notafan

    So, while paying for living in college might seem to be wasteful

    That is fine, Johanna but why should taxpayers fund it?

  21. johanna

    Never said that they should, notafan. My point is that if you (personally) are spending money on tertiary education, spending part of it on college – rather than private – accommodation is not a bad idea.

  22. .

    Two examples why this may suit some better -
    I have an ex student who got an an ATAR of 53 & managed to get into an IT degree (just) – struggled in first semester at uni & now 2 years later he is achieving HDs – OTOH that year’s school dux got an ATAR of 99 – entered Medicine & had a nervous breakdown in the middle of 2nd semester of his first year.

    High school is a useless waste of time of miseducation and forming of maladjusted ideas.

    Can anyone say their teachers gave them good career advice?

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