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Chapter 1
- Liberty Fund
- Chapter
- Additional Information
Capital_201-250.indd 243 1/3/12 7:52 PM Chapter 1 Financing Higher Education in the United States The purpose of this study is to explore certain current and expected problems in the financing of higher education in the United States. In particular, it will be directed to an evaluation of one method of solving these problems: the method of full-cost pricing of the services of higher education.1 The central thesis of this paper is that full-cost pricing has much to recommend it, both as a solution to the pressing financial problems of higher education and as a solution to other serious problems flowing from below-cost pricing. It is argued that the traditional reasons advanced to support the need for subsidy to higher education, even if accepted, do not 1 The findings may or may not be relevant to elementary and secondary education. At the very least, this relevance would have to be established by a study specifically directed to those two stages in the educational process. Capital_201-250.indd 244 1/3/12 7:52 PM 244. Can Capitalism Survive? demand below-cost pricing as the method of subsidy. A secondary thesis is that the case for subsidy has itself been both exaggerated and distorted and requires careful reexamination. Statement of the Problem No time need be spent here establishing the fact that the colleges and universities of this country, both public and private, do indeed face a serious financial problem . This is one of the best publicized facts in the United States today. In sum, the story is that of an industry which confronts a financial crisis because of a fast-rising demand for its services. This statement of the problem is used deliberately to throw in sharp relief the unique character of the industry . It is one in which the service is sold for much less than its cost of production.2 It is this and this only which makes of an increase in demand a matter of deep concern rather than a reason for optimism. An increase in the size of a student body usually means a larger deficit-a deficit that must be financed through public and/or private subsidy. To most students of the problem (including most 2 A study of various collections of data reveals that the revenues from tuition charges cover from 15 percent to 25 percent of the costs at publicly controlled institutions and from 45 percent to 55 percent of the costs at privately controlled institutions. [18.224.58.62] Project MUSE (2024-04-17 22:45 GMT) Capital_201-250.indd 245 1/3/12 7:52 PM Financing Higher Education in the United States • 245 college and university presidents) the problem is simply one of raising more money to meet the larger deficits . To only a few does it seem to be reason. for a careful and thorough reexamination of the nature and purposes of higher education and of the financial arrangements most likely to promote those purposes. It is the thesis of this study that such a reexamination is badly needed. In particular, to view the problem as simply a desperate need for expanded subsidy to higher education is to ignore the many problems that are associated with below-cost pricing-problems that will not be solved even if the expanded subsidy is secured. Note: This study is designed to concentrate attention on how educational services are priced, not on how the buyers of those services secure the funds to pay the prices asked. That is, full-cost pricing does not rule out private and/or public subsidies to individual students. There are really two questions here: One is how the service should be priced, and the other is who should ultimately bear the cost of the service. Both will be examined, but the first will receive the more careful study. The Effect of Below-Cost Pricing on Higher Education To subject higher education to economic analysis may seem to be laying profane hands on a sacred symbol . Such is the mystique of this industry that it must Capital_201-250.indd 246 1/3/12 7:52 PM 246. Can Capitalism Survive? not be appraised with the vulgar calculus of the marketplace . Yet "the vulgar calculus of the marketplace" still remains as the most humane method man has yet devised to solve those problems of allocation and division which are ubiquitous and permanent in human society. This we have accepted as a people...