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Yesterday I mentioned a study that believes a “Value-Designed” model of undergraduate education can be delivered for well less than $10,000 per year. And I am in complete agreement.

Compare the market for higher education with the market for other consumer goods and services. The distinguishing difference between education (or health care for that matter) and typical consumer goods is that for most consumer goods, the consumers themselves pay for the full cost of  the good. In higher education, virtually every student receives a subsidy to attend, even those who are paying full price. And this subsidy is largest the “better” the institution.

Another major difference between education (and health care) and most consumer products is the system of governance used to manage each. In higher education, not only are the employees largely running the place (well, certain employees) but decision makers do not benefit from decisions that they make to enhance revenues or reduce costs, and they are also not penalized for making decisions that hurt revenues or increase costs. And put on top of this a system of accreditation that prohibits meaningful competition and contributes to an arms race in amenity spending, and you get some good old fashioned out-of-control costs. Not only that, but given that there are roughly 4,000 institutions of higher education in the U.S. it is remarkable that we do not have the kind of choice in quality and value that you would get in a typical consumer goods market, say in the market for deodorant or collared shirts.

In the deodorant market, you can get spray, roll on,gel … and clear or colored … in hundreds of different scents … mens and womens … with antiperspirant or without … in tiny sizes, medium sizes, or value sizes … now you can even get full body deodorants … or even a rock! And each of these from dozens of different manufacturers. This stuff was not even available to our great-grandparents, and now we get it without even thinking about the cost.

Why do we get such drastic variation in product quality and diversity? It is because the producers of each of these items are working extremely hard to satisfy various consumer wants and desires. Not everyone wants Old Spice Sportstick. And when a producer figures out just what people want, there is lots of money to be made from delivering it. And these profits spur even more competition from other manufacturers, and even from within, which reduces costs, and spurs the creation of even more new products, and a virtuous cycle is underway.

That does not happen in higher education. And it could.

But what is most startling to me is this. With some sensible planning, it is not unthinkable to deliver a world-class quality undergraduate experience for $10,000 per year in EXPENDITURES. If I built an endowment or secured gifts and grants, the out-of-pocket cost to students would be far lower. However, think about what your local K-12 public school spends to educate each student per year. There are some districts here in my new hometown that are spending over $15,000 per grammar school student. What is disturbing is that I have never in my life come across a study, business plan, school board plan, etc. that does something similar to what Professor Fried has done. Never.

Why is it that our school boards never ask the question, “Is it possible to get an Andover or Exeter” quality K-12 education for $10,000 per year? Or less?” If you go to a school board meeting and request that they put together a proposal for a “value-designed model” that appeals to customers (tax-payers) seeking the greatest value, they would stare at you like you came in there trying to sell adult toys to them. Really.

I wonder why? Maybe it is this (unions) or that no one partakes in this (or that they are held in May and not on Election Day) or this or this or this (pdf file)) or this.

K12

incentive for profit to serve customers, to satisfy differeing interests, diversity

3 Responses to “The $7,376 University Redux”

  1. Patrick Carter says:

    My bet would certainly be on the Teacher’s Union. My mom is a teacher and I know from experience that they are extremely powerful (especially in New York) Kind of sad because oftentimes they end up working (despite their good intentions!) against the best interests of the students an oftentimes large groups of the teachers. I think what you said before about OPEC in regalia definitly applies here too, say I wanted to start a new college just oriented on say, giving the best political science/international relations/economics education possible to my students. I think the the U of R and RIT etc would have a few words to say about that. For example I would probably be surrounded in a dark ally by college deans holding large sticks going “We’ll show you what we think of Mr. Clever Dick in these parts…”

  2. Al Bino says:

    The more people pay for education, the better education they feel they are getting. Schools love throwing away money on useless things because they don’t mind charging a lot.

  3. Patrick Carter says:

    Couldn’t agree with you more, al bino

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