Why Tuition Inflation is Good for You

by JT McGee

Tuition costs are rising much quicker than costs in any other category. The reasons for ever rising tuition prices are argued relentlessly. It’s probably a combination of greedy schools, too much financial aid, far too many liberal arts cash cow majors, and way too many administrators.

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But who really cares, right?

In all reality, ever-rising tuition prices are your best friend. The more expensive college becomes, the more others have to pay to get the same degree you have.

Human capital is a fairly competitive business. I can relate this to an investment I own, Conrad Industries, which is involved in one of the most competitive businesses in the world, ship building and repair. I mean, it’s one of those businesses where customers shop around and have many different choices in who they work with. Business doesn’t just fall in your lap because you happen to have the prettiest ad in the Yellow Pages.

But Conrad Industries manages to make ridiculous amounts of money doing it, especially when you consider how little money it invests in what it does. The reason is simple: it bought all the most expensive parts of the business (land, mostly) at prices not seen in many decades.

So to compete with Conrad Industries today you would have to buy land and buildings at 2013 prices to compete with a company that paid 1960s prices for its waterfront land and buildings. Oh, and you can’t beat it on quality, you have to beat it on price. Good luck. It would be impossible. You’d lose money trying to match their prices if the market were bitterly competitive. They can sell their services cheaper given their cost basis.

Your college degree is the same way. Someone who goes to school today and graduates with $23,000 in debt (the current average) can charge way less for his or her services in 2050 than someone who goes to school in 2050 and graduates with $150,000 in debt.

So, once you’re out of school, you should root for ever rising college tuition. I know I will be next year. I say let’s make it $50,000 a year at every state school for every major!

{ 5 comments… read them below or add one }

PK February 22, 2013 at 10:29

How expensive college becomes minus the amount of Financial Aid you get (kinda) is probably the right equation. Maybe minus the amount of ‘non-payback’ financial Aid, although, for some reason (hmm…) 18 year olds look at debt almost the same way as scholarships and grants (and work study).

Seriously though, you’re right. Maybe people just are following the Permanent Income Hypothesis, or people have no idea what their degree is worth – but at some point, you’ve got to expect people will start saying ‘no’.

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Daniel February 22, 2013 at 14:20

Unless you have kids and care about the price of education when they go to college. Also, more educated people will lead to more productivity as a nation, right?

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Brick By Brick Investing | Marvin February 22, 2013 at 21:28

Wow! From an economical and strategic standpoint your argument is very valid. Pure supply and demand, the more tuition increases the less supply of college grads there will be. However, from a moral standpoint and long term viewpoint I don’t agree with this. This might work in the short term but from a longterm view point our young generation will not only be less skilled but the skilled workers will be so indebted that they will not start contributing to the consumer market until their debts are paid off which will in turn start a recession. Domino effect.

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Sarah Park February 24, 2013 at 01:47

Yes, tuition inflation has good effects. But as a parent, it is quite a headache.

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101 Centavos February 25, 2013 at 21:31

As long as your degree is in demand. I imagine there will be an oversupply of Sociology and Psychology majors for years to come.

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