Supply and Demand of College Degrees: 101

Supply and demand for college education is out of whack, and it has been for the last few decades. We have heard that a college education is a must-have, so we inherently demand a college degree. We carry this ingrained spirit of demand and are fully convinced that a secondary degree is worthy of tens of thousands of dollars in debt. But is it? There's no doubt that a secondary degree is valuable, but just how valuable and for whom?

Culturally, we have been trained to ignore outrageous college expenses; and so we have been willing to pay exorbitant tuition costs without knowing the true worth and payoff of a four year college degree. But what is a college education really worth? Let’s consider the supply and demand first.

Would you pay the full value for a car if you knew it wouldn’t start? Like any smart consumer, you would want 100% assurance that the car would run great if you paid full price. But when it comes to the cost of college, people are afraid to ask the big questions to determine the degree’s true value (such as, Will this expensive degree really help me, and if so, how?“). The inherent fear of failure to self, family, and community thus causes a skewed demand. Fear of not being a success, fear of failure.

Many people are worried that they will not get ahead in society without a college degree, and thus believe they'll disappoint themselves and their families if they fail to complete a collegiate program. That idea may hold some truth, but it is not true for everyone, because everyone needs something different based on their unique life situation. Sadly enough for us and our economy, the supply and demand curve for degrees is too often pushed along its inclined slope by a false fear of failure and inadequacy; but not by a genuine desire to learn at the collegiate level at a respectable price.

Some universities use this generational fear to enroll as many students as possible, simply because students keep the universities in business. Students, along with their loans, are the currency. In an attempt to appease stakeholders, far too many universities deceive students into acquiring federal and private loans for the purpose of learning subjects they could have learned at a much cheaper cost, or even for free with a library card and internet access. For-profit colleges are especially prone to use this ingrained generational fear to deceive people, as they are known for targeting disadvantaged and non-traditional students – many of whom live at very low income levels and are entirely dependent on additional funding to pay living expenses, such as rent and food. If you check out the marketing budgets for many for-profit colleges, found via their publicly released financial statements, you’ll see that a lot of money is being allocated for pushing this demand curve higher, and higher. The focus of these institutions is on the demand, not on a well-qualified and affordable supply.

For-profits have been known to market their college programs by selling the dream of “making it.” It is well known that the admission departments at for-profit colleges use scriptswhen talking with potential students. These scripts are meant to hit the person’s “trigger points” with well-designed questions that draw out the ingrained fear of leaving the planet without a college degree. Granted, there is nothing wrong with someone using a college degree to reach his or her goals; but to spend an incredible amount of time and money to jump through hoops for your dream job (which most people do not consider a dream after a few years of working) is detrimental to our economy and our view of higher-education. The demand becomes numb to the idea of real education, and believes the sole purpose of a degree is higher status – the sense of “making it”.

So, demand for college degrees is strongly driven by fear, blind acceptance, and easy access to student loans. It is detrimental because the false fear of not “making it” is keeping people from seeing the true purpose of education, and does not allow price to be factored into the demand. This generational fear, the supply and demand curve, and the ever climbing tuition costs will advance until something serious happens. Many economists believe this “something” is the next inflated bubble to burst in our economy, causing another recession or worse.

How do we stop these inflated tuition costs for mediocre college programs? Well, demand will need to slow down. There must be a dramatic change to the average costs of tuition if people would like a quality education at an affordable price, and there must be a renewed sense of quality education – in other words, a quality product will need to be demanded by the majority of degree consumers.  Who will define “quality education”, and who will make it affordable? As long as ill-prepared student consumers continue paying high tuition costs and take on considerable debt for sub-par education, without questioning quality or affordability, then healthy demand will be skewed. The majority of prospective students need to be educated about the business of higher education before enrolling; and heed the warnings, before suffering the consequences. Each one of us is responsible for asking the tough questions for ourselves, loved ones, and our communities.

Here’s a tough question: What are most universities using tuition payments and funding for? It is not like they are building large machines or developing new technology. If they did that, they would be businesses (which many colleges today model). Their overhead is light and consists of paying adjunct instructors low wages, administrators’ salaries, supplies, real-estate costs, and the development and maintenance of online platforms. Those things do cost money, but they do not cost so much money to justify an English-101 course costing $900-$1200 per student, and that does not include the book or commuting costs. Our government has made some attempts to help people avoid this deception, and there are a few senators who are passionate about resolving this problem; but it is up to you to demand quality and affordability and ask yourself, the university, and state representative the tough questions.

Ultimately, we need to do our own research and find a way to pay off tuition and loan costs before enrolling. It is a huge risk to assume that your college degree will help land you the type of salary that will pay off large tuition and loan expenses post graduation. The suppliers (universities) are betting that you will take that risk, and so far they have been making the correct bet.

It is not a guarantee that you will land a high paying job any time soon – it may take time. This is why we must be smart about what colleges, degree tracks, and payment agreements we choose. New students must also develop sound budgeting and finance skills before starting classes, because even government subsidized loans accrue interest and need to be paid back in full. As I mentioned, the suppliers are banking on the trend that students don’t understand how loans work and won’t thoroughly research the product’s quality and affordability.

With all that said, the government is not to blame for this demand being so out of control; but can you imagine what would happen if government stopped dishing out loans and grants so quickly and easily? Not as many people would enroll, and thus tuition rates might drop. Demand would fall because the out-of-pocket costs would be too much to pay. The solution for sky rocketing tuition rates may not be that easy, but the focus here should be on the communal perspective of college costs – that is, how these costs are impacting our society and culture: there are the lost opportunity costs; emotional costs of carrying student debt for a decade or more; and the professional and intellectual costs from missing out on great entry level experiences, starting your own business, or world travel.

To finish and summarize this long post, here is another tough question: Is college a necessity, such as food, water, and electricity? It is not, but the inherent fear that people carry makes it seem like a tangible necessity, and drives a manic demand for an overpriced asset. As colleges evolve their businesslike models of operation around this status-laden fear, the supply and demand party will become even more insane. As long as this skewed demand exists, more and more colleges will spring up without lowering tuition costs. Think about it – demand for sub-par education has climbed upward during a recession. Simply put, an unceasing desperation and generational fear drive this demand higher, and the suppliers profit.

True education as the great philosophers, scientists, and artists knew it to be may be entirely eradicated if we do not demand quality and affordability before signing the one-sided enrollment agreement. It’s not like the suppliers of college degrees will return your tuition payments if you are not satisfied with the quality of their products. There isn’t a return and refund policy factored into this supply and demand model, so be careful that you do not get stuck in a program that leaves you in serious debt without serious assurances. It may take you and your family for a bad ride on a chaotic supply and demand curve.

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