The Economics Behind the College Debt

May 30, 2015 0 1224


The persistent increase in the costs of college tuition is rapidly becoming an economic truism, and is almost as fixed as the economic laws themselves. While a sizeable portion of the student population agitates for state intervention, in the form of loan reform, in remedying the financial difficulties of those overburdened with student debts, others engage outright in debt resistance, as seen in the Occupy Wall Street offshoot of the Strike Debt movement. Initiatives like these, though, conveniently neglect the economic principles elucidating the underlying causes of bloated college tuitions. The results of this stifling of thought have been disastrous, as due responsibility for a crisis is shifted away from the most suspect culprit –state interference in the economy– towards oxymoronic falsehoods, such as “free-market capitalism”, leaving the state to continue market distortions with unprecedented impunity.

It is peculiar how entrenched the university system is in an age where information is relatively free and effortless to attain; the invention of the telegraph, the radio, and in particular, the Internet –all hallmarks of the burgeoning Information Age– should have rendered the university obsolete on a free market, were it not for state-imposed monopolies on education. State governments approve the accrediting agencies of a nation, and by proxy, provide legal legitimacy to the institutions of “higher education”. The effect of such intervention in the realm of education is two-fold: indirect control over the substance of education, and inflated college tuitions.

Although national governments do not directly accredit universities and colleges, they authorize accrediting agencies as “reliable authorities” regarding the quality of education provided by educational institutions. These agencies, in turn, provide the designated universities with the power to license, i.e. to grant diplomas necessary for employment in certain professions. This mechanism functions as a barrier-to-entry, as it prevents the formation of unaccredited educational institutions that would supply direct competition. Since there is little to no incentivize to attend educational institutions that have no recognizable licensing power –institutions whose diplomas are not widely recognized by employers and almost certainly not by civil services– universities must de facto obtain accreditation to be competitive in the education industry. The costs, in time and capital, associated with accreditation naturally restrict the available supply of educational institutions, while the demand for “education” becomes relatively inelastic – a trend particularly noticeable with the rising demands, on part of employers, for college graduates.

As the laws of economics would have it, the artificial restrictions on supply, in accord with fixed demand, lead to dramatic increases in cost. Educational competitors that would have formed in the absence of accreditation schemes –and competed in keeping the costs of tuition low– are conspicuously missing, with grossly distended institutions reaping the benefits derived from educational monopolies and from the exclusive privilege of forming the content and character of post-secondary education. It is ultimately that these influences –not the usual suspect of market forces and interactions– which enact and maintain parasitical institutions smoldering generations with unnecessary debt and frustration.


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