Paper 3 - Education

The Economics of Higher Education: Rising Tuition Costs and Accessibility
Introduction
Education is a key driver of social and economic mobility, but increasingly unaffordable tuition
prices at institutions are posing significant barriers, especially for low- and middle-income
families. In concern with steadily rising tuition, financial aid systems have emerged and
expanded to blunt the costs for students and their families, but an affordability gap still persists.
The paper discusses various economic perspectives of higher education: supply and demand
analysis, opportunity cost, elasticity, and others on the basis of recent research into tuition prices
and financial aid and their impacts on access and economic mobility.
Rising Costs and Financial Aid Gaps
Despite slowdowns in tuition growth in recent years, high costs still pose barriers for many
people. Federal Pell Grants cover roughly a third of tuition costs for low-income students,
according to USAFacts. This aid often isn't enough to make up the gap, especially true at
institutions that don't have large endowments to draw upon. Public universities with lower
financial resources can offer only limited aid, forcing many low-income families to spend lots of
money out of pocket or take on heavy loads of student loan debt to cover (USAFACTS). In
contrast, private universities that have big endowments - like Harvard or Princeton - can offer
huge grants, thereby reducing costs for low-income students, which is a benefit that many public
universities cannot match (Brookings).
Economic Principles in Higher Education
1. Supply and Demand Dynamics: Further, the growing demand for college diplomas,
particularly those with a good reputation has moved upward in price with growing
demand, thus translating into higher tuition prices. By keeping tuitions high, the elite has
managed to exploit their market power not only on high-income students willing to pay
premium prices for high-prestige college and degree but also on the lower-income
students who are bound and dependent on financial aid. This dynamic does correlate with
economic theory, as low supply and high demand always drive prices up. However, the
need for financial aid discloses the clear governmental manipulation of the market to
remedy the access barriers faced by poorer families.
2. Opportunity Cost of College Education: Attending college requires an opportunity cost
on the part of the student, especially from poorer families who would have otherwise
joined the workforce right after high school. In many ways, many students and their
families have to decide between the long-term benefits of a degree versus the short-term
financial relief offered by joining the workforce. As the Brookings Institution explains,
there is typically a large difference between how much financial aid is granted and how
much tuition remains due; students would then need to consider possible debt resulting
from such funding against possible increased future earnings a degree could provide
(Brookings).
3. Elasticity and Economic Mobility: The demand for higher education, particularly at
high-demand levels, is inelastic; increased tuition costs have little consequence for
enrollment. Students recognize higher education as an investment that is likely to lead to
superior job opportunities at a later date, and despite increased costs, demand remains
high. This inelasticity makes financial aid even more critical in ensuring access for
low-income students who otherwise cannot afford higher education. Inequality in
institutional financing leads to unequal opportunity, ultimately decreasing economic
mobility for students unable to afford a premium tuition cost and/or with extensive
financial aid.
Policy Implications and Recommendations
The rising costs of higher education pose a balancing act between the institutional need for
revenues with the issues of student affordability. Existing pricing models reflect deep
inequalities: well-endowed institutions can afford to subsidize the education of low-income
students, while public universities and small colleges often cannot. A report from Brookings
noted that this gap is further exacerbated by inflation-adjusted declines in net tuition prices,
mostly at public institutions, which further limits their ability to offset increasing operational
costs (Brookings).
Above all, programs that would extend Pell Grants and scholarships funded by states hold the
key to such disparities, offering a discount on outstanding tuition that low-income families
simply can't pay. Vocational and trade school incentives are another avenue that could open more
paths for others that ease the pressure on the four-year college model, offering those careers
more available than students who likely won't need a college degree to achieve their aspirations.
Conclusion
The economic challenges of rising tuition underline some of the most basic economic principles
in higher education. The demand has outpaced supply, and as a result, colleges have steadily
increased tuition, frequently to unsustainable levels in terms of student debt burdens. Financial
aid bridges the gap to a certain degree, but large gaps particularly for public institutions, which
cannot keep up in support for low-income students compared with private institutions with large
endowments. This means that affordability and access to college require a multilayered policy
approach: building up federal aid, strengthening public university support, and encouraging other
career pathways. By alleviating these economic barriers, policymakers can make higher
education an accessible, fair pathway for everyone.
References
● USAFacts. (2023). “How rising tuition costs impact higher education access and
economic mobility.” Retrieved from USAFacts
USAFacts.
● Brookings Institution. (2022). “College prices aren’t skyrocketing—but they’re still too
high for some.” Retrieved from Brookings
Brookings.

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The Economics of Higher Education: Rising Tuition Costs and Accessibility

Rising Costs and Financial Aid Gaps

Economic Principles in Higher Education

Policy Implications and Recommendations

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