Four Sources of Tuition Inflation

Manhattan Institute: "Tuition inflation has been extensively examined. These studies neglect to deal with this question: Why has pressure from the market failed to mitigate these effects, as would normally happen in competitive markets for other products and services?" 1) Price v. Value: In the market for higher education, buyers’ willingness to pay will depend, to a large extent, on their perception of the long-run financial value of education, in the form of higher wages and more consistent employment.

2) Price Opacity: Published prices for tuition and fees are often far different from the prices that students pay after taking into account the discounts provided by the college and grant aid given by the federal and state departments of education ... The result of this pricing process is that aspiring students must make decisions about if and where to enroll based on a limited set of information about the options available to them."

3) Oligopolistic Competition: A geographically constrained marketplace means that many potential students will choose between a limited number of options within a reasonable commuting distance from home ... In practice, this can lead to what is known as oligopolistic competition, in which a market is dominated by a small number of firms—or, in this case, colleges. 4) Regulation: To gain eligibility for federal financial aid, colleges must participate in a process of accreditation ... The result is that innovative higher-education providers often have to exist without the benefit of access to federal financial aid ... the disadvantage of lacking access to federal aid dollars limits the extent to which they can prosper."