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ERIC Number: ED536280
Record Type: Non-Journal
Publication Date: 2008-Apr
Pages: 24
Abstractor: ERIC
Reference Count: 0
ISBN: N/A
ISSN: N/A
A Tuition Bubble? Lessons from the Housing Bubble
Gillen, Andrew
Center for College Affordability and Productivity (NJ1)
Systemic increases in tuition across the board indicate that the structure of the higher education market plays a fundamental role in encouraging these increases. Part of the problem is that public policy attempts to subsidize attendance for too many students on the assumption that this will increase access to higher education. These subsidies, intended to make college more affordable, are ineffective because schools maximize prestige rather than profit, and because the lack of any measure of their output rules out normal price competition. This study argues that government policies are spurring rapid increases in tuition. By encouraging tuition to rise more than it otherwise would, policymakers are fostering a tuition bubble. To stop this from getting any worse, public policy should move away from guaranteeing student loans for so many students. Such guarantees result in lax lending standards and artificially low interest rates, both of which contribute to rising tuition, just as they contributed to the recent housing bubble. This does not, however, mean they need to be eliminated completely. Loan guarantees would not have such a negative effect if they were restricted to low-income students on a graduated scale, with the loan amount decreasing as income increases. The idea would be to increase only the ability of low-income students to pay as opposed to increasing the ability of nearly everyone to pay. When only the ability of low-income students to pay is increased, schools cannot raise tuition like they can when the ability of everyone to pay is increased. (Contains 8 figures, 1 table, and 43 notes.)
Center for College Affordability and Productivity. 1055 Thomas Jefferson Street NW Suite L 26, Washington, DC 20007. Tel: 202-621-0536; e-mail: ccap@theccap.org; Web site: http://centerforcollegeaffordability.org
Publication Type: Reports - Research
Education Level: Higher Education
Audience: N/A
Language: English
Sponsor: N/A
Authoring Institution: Center for College Affordability and Productivity (CCAP)