Why Don’t Colleges Lower Their Prices?

Why do colleges charge so much money? The simple answer to that question is because they can. Here are three reasons they don't lower their prices, and how you can begin to change the higher education industry.

First college administrators are often reluctant to reduce tuition as families tend to believe that lower costs means lower quality.

The most prestigious schools in the country charge a price tag to match. All the schools in the upper echelon are priced accordingly, and schools who are trying to build their image often increase their prices to match top ivy-league schools. The quality of the school is perceived to be great because the price is so high.

Sandy Baum of the Urban Institute says.

"There's certainly evidence that people don't know how to measure the quality of a college education ... They think that if it's expensive it must be better. I don't think colleges want to have high prices, but I do think they see strategic reasons why it may be in their interest to have high prices."

Second Colleges charge those prices because people are still willing to pay them. Over 21 million students are enrolled in different types of colleges across the country, and many universities turn away more students then they accept. As long as people are willing to pay the high prices of college, they will continue to charge high prices.

Recently some colleges have seen steep drops in enrollment and as a response drastically lowered tuition. For most of these schools, the tactic worked and enrollment has increased. Some colleges have also taken other cost-cutting measures, such as eliminating low-interest departments.

ThirdCollege charge high prices because they are encouraged to with access to millions of dollars in government backed loans and grants.

The theory that more federal aid drives up college tuition prices is known as the Bennett Hypothesis. Because students are easily able to get their hands on money from the government, colleges are able to raise their prices higher more quickly than they would otherwise.

In an interview with the NY Times, Bennett says…

If the federal government gives money, tuition goes up. If the federal government doesn’t give money, it goes up. Now, I think the availability of federal funding drives it up more quickly and more surely. Federal student aid makes it easier for colleges to do what they’re going to do anyway, which is raise tuition. There’s more money available.

Federal loans were meant to help poor students achieve an education that would lift them out of poverty. Too often today they serve as a way to hold college graduates back from economic milestones such as getting married, starting a family or buying a house. Sometimes the fear of debt can keep students out of college altogether. One study found that debt above a certain level was associated with higher dropout rates ($12,711 for men and $14,682 for women).

What Do We Do?

Bennett suggests that there is still a place for the government to offer aid in the form of grants for very low-income students, and that school eligibility for student aid should be linked to default rates and tuition increases. Surely making colleges more invested in the success of their students is one place to start increasing the value of college.

Aside from public policy, there is a more immediate way you can change the higher education industry, and that is simply by voting with your dollars. If more and more families put their dollars behind universities that are making an effort to reduce costs while at the same time increase educational quality, more colleges will change their ways. This may mean fewer climbing walls and lazy rivers, but perhaps more time spent studying and more students who can graduate confident in their financial future.

An easy place to start is to check out how fairly a university is priced by visiting the Value Page at College Factual.