No one is without their set of opinions and indeed, lack of having a expertise in something creates no impediment to the opinions one has.
We have opinions on things we know about and things about which we are ignorant.
What is interesting is that we seem to take the opinions of actors, politicians and sports figures with more credibility that they deserve.
With that thought in mind, let me wade into the issue of the high price of college tuition. By doing so, I hope to shed a little light onto this corner of the economy.
As an investment advisor, I am constantly checking the price of things. I am interested in prices determined by market forces or factors without manipulation by insiders, governments, special rules or favorable regulations. When you have unfettered pricing available to all participants, you have information available from which you can make decisions. The college tuition market does not have unfettered prices. What you do have is subsidized demand for college supported by government policy.
.Because demand is subsidized, prices for tuition are higher than they might otherwise be. The demand is created by student loans, scholarships, grants and parental participation in paying for college expenses. Given high demand and a fairly steady supply of places in colleges, one would expect tuition to be rising inexorably over time and this is what the data over the past several decades reflects. College tuition prices have risen faster than overall inflation for thirty to forty years. Can it go on forever? No. As the numbers suggest, over time things that grow faster than the overall economy eventually slow or become the whole economy. Think about healthcare in this context. No industry is more ignorant of their own costs (not prices, but costs) than the healthcare industry.
The subsidies in the college market do have long term consequences. Witness the sheer size of student loan debt (over a trillion dollars), which is larger than the auto loan market, the credit card market and most other loans markets. Graduated students are forced to return home to Mom and Dad as they pay down their loans, unable to afford a car payment or apartment rent while burdened with loan repayment. I wonder what college tuition would be if there were no student loans, scholarships and grants for sending our bright, young people on to higher education? Please note that I am not in favor of less higher education. I just wonder what the price would really be if we got the government out of the issue.
Just like the energy issue of a few years ago, high prices are ultimately their own solution. The market will eventually offer a solution or solutions to the high prices and at the same time give investors the opportunity to participate in the disrupting offerings. For example, Uber is offering the service of a transportation alternative that is cheaper than taxis or owning your own vehicle. Online colleges are offering an alternative to standard high priced on-campus college educations.
This article could serve as a warning for those offering subsidized services. Beware, for disruption is coming and the best you can do is slow it down for a while with rules and regulations. Alternatively, you could join the disruptors and find a home for new forces in the market.
