Tying federal subsidies to tuition growth would dampen a university’s incentive to bid for prestige in much the same way that league-imposed salary penalties in professional sports help curb the bidding wars for superstars. But if the starting-salary gap keeps widening between the highest- and lowest-paid college graduates, this remedy’s effectiveness would be temporary at best.
We might consider taking more direct aim at the component of tuition inflation that is attributable to growing salary gaps. Raising taxes on top salaries would be a good idea for American society in general, and not just for higher education. It would not only shrink the effect of salary disparities, but would also generate some much-needed revenue.
Leaving aside the revenue fallacy, Frank is absolutely right, although I put it a bit more starkly:
In the ultimate sense, colleges charge what the market will bear (even if that market is massively subsidized and distorted): when you hear a private institution crowing about how fifty percent of its students receive aid (i.e., it’s socioeconomically diverse), remember this means that half of the students come from families that can pay $40,000 to $50,000 per year in cash. When you account for families with more than one child–and children often overlap–we’re talking about families that can plunk down $80,000 to $100,000 for a couple of years in a row, with some $50,000 years in the front and back to boot.
If a family with two kids born two years apart sends both children to private colleges, that family will spend ~$400,000 over a six year period. This is in a country where the annual median income is ~$50,000. So when you hear well-endowed universities congratulating themselves that sixty percent of their students receive financial aid, keep in mind what that really means: forty percent of families could afford to pay what is essentially a second mortgage cash on the barrel head….
What is driving the incredible rate of increase of college tuition is that there are enough families that can pay those tuitions with cash. Sure, they would rather pay less (less is always better than more), but they can pay more. That drives prices up. The start of the boom in tuition was the explosion in income inequality.
This really isn’t that hard to fix. It’s not rocket science. Or even microbial genomics.