#1 Reason for the Price of College: Supply & Demand

Remember the concepts you learned in your first economics class? GDP, unemployment rates, pricing etc. It turns out, one of those concepts are the very reason for the price of college today. According to Pascal-Emmanuel Gobry from Forbes.com, the reason for the high price of college is actually painfully obvious. He says that if you increase the want or need for something without increasing the amount you have, then the price will go up in a free market. Prices are signals in a capitalistic market economy. When a price is high, it is either more of a luxury good or it is a highly sought after good. Most people do not believe that college is a luxury item so that means that college is very valuable to people. They are willing to pay very high prices to obtain degrees. Because of this willingness and the easy access to tens of thousands of dollars in financial aid from the government, demand for college increased dramatically in the past 30 years. And, not coincidentally, prices sky rocketed too.

Financial Aid loans were meant to help more people get into college and create a more educated workforce. Do these loans really increase the price of college overall? Gobry gives the example that “US colleges that don’t accept Federal loans have tuition roughly half of their similarly-ranked peers.” For colleges that do not accept federal loans from students, the prices are almost half as much as the other colleges. Inflation in tuition for those colleges are substantially less. Even if you are an ardent supporter of higher education in this country, will you support these loans no matter how high prices climb?


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