Tuesday, June 29, 2004

More Bad Economic Reporting: Or was the Oldman wrong about rising college costs?

When I first read over the new USA-Today article about increasing affordability of college education, the oldman thought he was going to have to write up a retraction. One of the oldman's assertions is that college costs have been rising higher than the "overall" CPI weighted basket of inflation and was contributing to higher cost of living inflation. But the article only apparently contradicted that.

Tuition burden falls by a third
By Dennis Cauchon, USA TODAY

What students pay on average for tuition at public universities has fallen by nearly one-third since 1998, thanks to new federal tax breaks and a massive increase in state and federal grants to most students and their families.

Contrary to the widespread perception that tuition is soaring out of control, a USA TODAY analysis found that what students actually pay in tuition and fees — rather than the published tuition price — has declined for a vast majority of students attending four-year public universities. In fact, today's students have enjoyed the greatest improvement in college affordability since the GI bill provided benefits for returning World War II veterans.

What made the difference: a $22 billion annual increase in grants and tax breaks since 1998.

That 80% jump in financial aid — targeting middle-class families earning $40,000 to $100,000 a year — has more than offset dramatic increases in tuition prices.

"College still takes a big chunk out of most families' income. But the average student is much better off today than headlines would have you believe," says Sandy Baum, an economist who co-authors an annual report on college costs for the College Board, which oversees college entrance exams.[emphasis added]

When you first read the title it seems to promote the idea that college costs actually fell. But that's not the truth. What happened is that college costs are soaring out of control. What's also happening is that cost is being redistributed by taxes and tax cuts.

You see the cost of a college education is increasing, it's just that no one is complaining much because the government is subsidizing that education. However that subsidy is paid for by Federal borrowing or taxes, and in either case in the end everyone really is still paying more for education. It's just another case of robbing Peter to pay Paul.

So it can be true that college costs are soaring unreasonably and that college become more affordable for a typical family. It's just that the burden of paying that cost was shifted a great deal to the general tax base. That's the diabolical market distorting power of subsidies. They can simultaneously make products and services more affordable even as they allow the costs to skyrocket. With the government - i.e. taxpayers - picking up the tab colleges (and I work at one) have no incentive to curb costs because their tuition is being priced out of the range of ordinary people. Which empowers them to let costs skyrocket even more. Let me also state that these cost increases are not going toward staffing or pay increases for the most part. That's a discussion for another time however.

The important thing to remember is that this article was presented rather badly. The title should have read something like: "College more affordable because of government help." or more radically "Taxpayers pay a third of higher tuition." That would have been the honest and accurate and precise journalistic message about this economic process.

In the end these higher costs are reflected in higher real inflation so the oldman has nothing to retract at all on this issue so far.

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