Paying for college vs. buying Barbies: Why USD and Harvard cost the same, and examining the cost of pursuing a higher education

By Henry Kittle

What do Barbies and USD have in common? Besides the similarity of students, barbies are purchased for someone different than who pays for them. Parents just can’t say no; they don’t have the heart to deny their daughters the right to a brand name fashion doll.

And that’s why Barbies cost so much. Consumers are insensitive to changes in price, so they will continue to buy the product at artificially high prices. In other words, the Barbie company faces a price inelastic customer base. The same principle applies in college.

Universities have no problem filling seats because no matter the costs, the government has committed itself to lending for tuition. The government subsidizes higher education with the intention of making it cheaper and therefore more accessible to the general public.

The problem is that when a good becomes cheaper, more people consume it and demand rises. There’s a limit to the number of students colleges can hold so most universities have primarily responded to higher demand by increasing tuition and spending more and more, year after year.

But, the extra spending on improving campus facilities, sports programs, and administrative staff does not necessarily improve the quality of the education or the value of the degree.
This problem is in many ways similar to the housing crisis in 2008 and has been referred to by media outlets as the “higher education bubble.” Although, when this bubble bursts there won’t be houses to sell for collateral.

Furthermore, unlike other forms of debt, students loans are practically impossible to dissolve through bankruptcy. This is why in 2011, students took out $117 billion in new federal loans, raising the total outstanding college deb of the nation to above $1 trillion. Last year, the average student graduating from college had $25,250 in student loan debt.

An article in the Washington Examiner by James Harrigan and Antony Davies summarized the situation, “The impending student loan crisis, like the recent housing crisis, is born of government meddling, and promises to have similar results. But with the students, the coming bankruptcies will be much worse. Having decided that the path to prosperity is a college education, and that the free market was not providing “enough” college education, the federal government created Sallie Mae to take lending risk away from banks and place it on the backs of taxpayers.”

Since 1980, college tuition costs have gone up 945 percent according to the U.S. Bureau of Labor Statistics. According to data released by the College Board, 123 institutions now charge $50,000 or more for tuition fees, room and board. Last year, 100 colleges and universities charged that much. In 2009-2010, there were 58 schools that charged more than 50,000 and the year before that it was only five institutions with tuition that high.

This means every year an increasing number of colleges are charging more than the average American earns per year ($42,000 according to the Social Security Administration). The public must wonder how long this can last.

Here’s another question: Why does USD cost the same as Harvard University? A bachelor’s degree from Harvard gives someone a better chance of earning a higher salary and is therefore worth more than a degree from USD. So, Harvard should either cost significantly more than USD or USD should cost significantly less. Only in the screwy system we have now would they be priced the same.

As discussed before, USD’s price inelastic customer base allows them to raise the price of tuition. So, USD has an incentive to not price themselves differently than the best universities in the nation. They don’t want to appear weak and instead create the illusion of an elite institution through price signals. In a marketplace where perception and prestige become price points, substantive differences can be glossed over – especially when someone else is paying.