I know government gives out money for schooling, but how does that increase prices? If it increase demand, would the 1000’s of schools offer enough supply? What am i missing?
Ceteris paribus, because there is more money chasing after the service.
It’s pretty simple. You apply, and the college knows you can get a loan of $100,000, and that you are foolish or desperate enough to take it. Why not charge you $100,000?
Whereas if loans did not exist, well they can’t get blood from a stone. So they charge you whatever they think you can pay by waiting tables afternoons and in the summer, like in the old days.
To build upon what was already said (giving the loan raises the Demand (the amount you are willing to pay for school)), the government also makes it very hard to enter the schooling market. This also makes it so the supply of education can’t rise as quickly.
You could read these 3 articles for more information on the topic as well:
It’s the same as the housing bubble. Increasing home ownership meant increasing available funds to potential home buyers which created an auction like atmosphere. I’m not sure how or when this bubble will pop though.
I have to agree with an earlier post of how it is hard to get into the school market. The school I am at right now just raised next years tution for returning student’s 4.5% and new students 6%, to match inflation. But at the same time we are running a “balanced” budget and expanding the student body. Problem with both is if you actually look at the budget, you can tell they are cooked, and the on-campus student body had been flat for a decade.
Thats how an engineering school whose Mechanical/Aerospace Department is large enough to be its own seperate college, with an online business program, has a 50.2% College of Business body.
This is supply is “vertical” in the Keynesian/graphical economics, and demand has shifted to the right. ~Same amount, but a higher price.
In short, government subsidies.
I think these videos point out the absurdity of US government higher education policy:
(The link button has dissapeared, sorry)
The supply can’t keep up with the subsidized demand. It’s much harder to create a good college (or establish one as such) than it is to create $100k out of thin air.
Z.
Slight digression. I wonder if you guys have seen this. It’s a rather old article, but it’s great to see how gold has maintained its market value to a significant degree.