Why College Costs so Much

The US Government (USG) has decided that it is its job to help everyone purchase health care, houses, and higher education. It is not a coincidence that health care, houses and higher education costs are climbing out of control.

I’d like to go beyond generic “USG involvement” to examine some of the mechanisms causing higher education inflation.

A big one is the accepted legal theory of disparate impact. Disparate impact basically holds that if (i) some gateway results in fewer people from a protected class (certain races, certain colors, women, people over 40 years old, disabled, non-citizens etc.) than their share of the population passes the gateway, than (ii) it is presumed to be illegitimately discriminatory. This applies even if the gateway is neutral by any other examination. Once a disparate impact on a protected class is shown, the only defense to a civil rights lawsuit is business necessity. Not only does it have to be proven that the gateway has a demonstrable relationship to the job. Even more, the user of the gateway has to prove that there is no less discriminatory standard that would  do as well as that particular gateway in selecting appropriate candidates for the job.

Needless to say, with such amorphous concepts the party with the burden of proof loses. Just being sued is a sort of loss because if the burden of proof is against you the suit goes on until you affirmatively prove something in court.

In practicality, disparate impact made it impossible for any employer to give an IQ test to applicants. If you give an IQ test to any population we can predict with certainly some racial groups will come out with  higher scores than their share of the population. It has even undermined giving a knowledge test such as the fireman promotion test. The results are always skewed to not reflect the portions of the population each race enjoys. Even if the test is about which saw blade will cut through a metal door to rescue the people inside, if there is disparate impact the poor municipality has to go spend more money in creating another test which will yield more acceptable results, while still weeding out unqualified fire chiefs. How do you prove no other gateway would be more fair unless you try every other possible gateway?

So disparate impact made the employers throw in the towel on any objective test of applicants. How to get smart people, who after all do better then dumb people at most or all tasks? Simple, require a college degree. You can be pretty sure that the people who graduated from Stanford, Yale or Harvard have a higher IQ than the high school grad submitting an application. Middling college grads are probably smarter than non-grads. People with a few years of college are probably smarter than people who never went. Imperfect but better than nothing.

So the poor kids have to spend $70,000 a year for four years of borrowed money to be able to legally show prospective employers that they have brains. It is the only legal way for them to show their IQ.

Second on the walk of shame is the federal money loaned freely to college students and the bankruptcy exception for student loans. Non Dischargeable loans mean more loans can be made to questionable credits, unleashing a flood of [borrowed] money.  And federal subsidies and policies make even more lending to students possible.

What a golden age for students. Wait, if the USG subsidized car loans, would it mostly benefit drivers or car manufacturers? Drivers still have to pay off the inflated price of the cars sold. Car manufacturers would have more customers with money in their pocket that could only be used to purchase cars. Car manufacturers get the money, subsidised customers get the loan. Sudent loan largess has mostly benefited institutions of higher education to the detriment of student borrowers. The local university often has the nicest buildings, the best jobs, the finest grounds, the most events and parties, in the whole town.

The last thing I have time to write about is the ability to price discriminate. Imagine if before you purchased an airline ticket, the airline could demand to see your tax returns, income statement, expenses and net worth? Then imagine the airline could legally set a different price for you based on the information it learned. Student financial aid is a thinly disguised price discrimination scheme. The price is set so high that they expect nearly no domestic student to pay list price. Then they offer a discount designed to extract the highest portion of your disposable income that you can part with and your graduate’s disposable income over the next ten years. All for the coffers of the institution. Arn’t they nice benevolent institutions?

These are college material students and college educated parents they are fooling. Wow a $10,000 grant and $50,000 loan. Lucky me.