Economic Analysis of Business Practice
Remarkably, so much of the subsidy is translated into higher tuition that enrollment doesn’t increase! What does happen is that students take on more debt, which many of them can’t pay.
Just like anything else in this world the reason for tuition increase has to do with supply and demand. External events such as recessions and the earnings differential between college graduates and high school graduates also influence tuition rates. The availability of student loans makes it so that most kids have a chance of attending college. Budget cuts affect public institutions and schools often have to raise tuition to cover costs. Budget cuts also cause students to reduce their course hours or cut other items from their budgets to be able to attend school. College loans can increase the price of education because they allow students and their families to pay higher costs. colleges don't have to worry as much about losing students if they raise tuition costs. This creates a cycle in which student loans play a role in tuition increases, and then increases force students to take out even more money in loans. Another reason for the tuition increase is due to increasing costs in the constant expansion of university administration. This is because administrative positions at colleges and universities grew over the years. Myeshia Wagner
I agree that it sounds like just another supply and demand issue. I think it’s quite ironic where the article stated “colleges respond to expansions of financial aid by increasing tuition," making the very point of receiving financial aid kind of useless if you’re taking out as much loan money anyhow. And then students end up “take on more debt, which many of them can’t pay.”The cycle ends up being detrimental for students who mostly aren't going to end up with a high paying job so paying off those loans becomes a burden in those first few years out of school. And then there's students who decide they are going to get a high paying job after college and enter a graduate/professional program that becomes twice the amount per year as college tuition.I wonder if increase in administration pay would make that much of a difference in tuition prices, if so that is certainly something that needs to be addressed.
In your Managerial Economics book you highlight that "the value for a good or service is measured as the amount of money he or she is willing to pay for it" (Froeb, 2014). To support Bess' point, despite the fact that college tuition has increased 17x since 1971, the amount of people attending college has also doubled in that same time frame (Shoen). A good reason why is that statistics still support that adults with college degrees make substantially more income than those without. So despite the rising costs, this "transaction" of getting a college education still generates additional "wealth" in the form of income (Freob). So you could say that the capitalism model for education is working in this case. What is interesting about today is that as the wealth created in comparison to the costs start to move closer towards each other, the questions of the cost of education are now really coming into view. Reference: (Sheon, Retrieved from http://www.cnbc.com/2015/06/16/why-college-costs-are-so-high-and-rising.html)
In the USA colleges and universities continues to surge ahead leaving many students in debt with the higher tuition cost. The reasons tuition has been rising faster than college costs are that colleges had to make up for reductions. In 2006, the last year for state taxpayers sent $7,078 per student to the big public research universities that count $1,270 less after accounting and inflation that they sent in 2002. In the Managerial Economics book author has explained of value of service with the cost of customers want to pay for the service. (Froeb 2014). The value of investment will be in result of higher paid jobs. The competition is high as most colleges offer more scholarship which can help students actually pay the full tuition price but with a lot of applications shows there is a plenty of demand to gain scholarship compare to private colleges. The problem is that public colleges are not getting money they used to get from the government. http://www.cnbc.com/2015/06/16/why-college-costs-are-so-high-and-rising.html
Froeb states that an individual’s value for a good or service is the amount of money he or she is willing to pay for it. The biggest advantage of capitalism is that it creates wealth by letting a person follow his or her self-interest. So I guess people are paying the price (literally) for wanting a college education. As grants/loans are increased, so does the tuition. We are then stuck with debt that we cannot afford to repay. Kelley states that some colleges will raise tuition immediately after loans or grants expand to capture more of it. Others will raise tuition when they need (or want) more revenue, either because they want to spend more or because they’re receiving less money from the states (or some mix of both). They can do so, in part, because more aid enables students to pay higher prices (Supply and demand at its best)Resourcehttp://www.forbes.com/sites/akelly/2015/10/08/does-federal-student-aid-cause-tuition-increases-it-certainly-enables-them/2/#394594985ca0
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