Feb 7, 2020
Why is tuition at U.S. colleges so high? And what’s happening to enrollment?
You’re reading this Blog, so most likely you’re a college student and you would like to know the answers.
The scatter diagram shows data on college enrollments and tuition/fees/room/board in public colleges from 2000 through 2016.
You can see that from 2000 to 2010, enrollment increased, and tuition also increased. But beginning in 2011, rising tuition is accompanied by decreasing enrollment.
What’s happening?
We can view the data as the equilibrium quantity and price (tuition/fees/room/board) in the market for public college education. Supply and demand determine the equilibrium, and changes in supply and demand change the equilibrium.
The table provides some relevant data.
Changes in Supply
The supply of public college education is influenced by the number of colleges and by the subsidies that colleges receive from state governments.
Between 2000 and 2011, the number of public colleges and universities increased from 4,084 to 4,599, which increased supply, and between 2011 and 2016, the number of public colleges and universities decreased from 4,599 to 4,583, which decreased supply.
Government subsidies to public colleges decreased almost every year, which decreased supply. Before 2011, this influence slowed but didn’t stop the increase in supply coming from the entry of new colleges. But after 2011, smaller subsidies together with the closing of some colleges, decreased supply.
Changes in Demand
The demand for college education is influenced by three things.
The first is income. A college education is a normal good. When incomes rise, the demand for college education increases. Rising incomes throughout the years after 2000 exerted a positive influence on demand.
The second is the collage-age population—those aged 18-24 years. The size of this age group increased from 27.3 million in 2000 to 30.8 million in 2011, which reinforced the effect of rising income and strengthened the increase in demand. But the collage age population decreased after 2011, which decreased demand.
The third is job opportunities for college graduates. Advances in information technology have widened the earnings gap between college graduates and high school graduates, which has increased the payoff from a college degree and increased demand. But a high unemployment rate of college graduates after 2009 decreased demand.
The net effect of these influences was a large increase in demand before 2011 and no change in demand between 2011 and 2016.
Changes in Equilibrium
To figure out how changes in supply and demand change the equilibrium outcome, it’s always a good idea to draw a supply-demand graph. So that’s what we’ll do to see how the market for public college education has changed.
Now take this short quiz to check that you understand what you have just read.
Multiple Choice Quiz—Why is Tuition so High