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Thursday, February 18, 2010

College Brands : Walmart vs Tiffany

John Steele Gordon, in A Crack in the College Cartel?, complains about the rising cost of college tuition. His analysis omits a few simple observations. Average tuition numbers should be read with care. He observes that average tuition today is $37,005, almost three times higher than the $12,500 that inflation might predict based on his college costs in the 60s. (My tuition costs were an order of magnitude lower than his, and I graduated decades later; it pays to shop around.) To put this average tuition int0 perspective, let's use Stanford for an example. Stanford tuition (I am using College Board numbers) is $37,380. Its average financial aid package is $40,204. Over half its freshmen receive financial aid. Hence the average tuition cost is arguably about $17,280. This is nearly 40% higher than what Gordon paid, but not the 200% increase that he asserts.

Built into this tuition and financial aid system is the usual liberal redistribution of wealth. The high tuition/high financial aid model allows colleges to force the upper middle class and wealthy to subsidize everyone else's tuition.

Gordon further compares colleges to a cartel. I cannot speak to the lower tier colleges, but it is clear that prestige colleges think that high tuition helps maintain their brand mystique. I once heard a top university administrator assert that it was essential that he maintain his school's brand, and "that brand is Tiffany, not Walmart." High prices are part of luxury branding.

I am more of a Walmart shopper myself. This year the average tuition and fees at U.T. Austin are $8500-$10,000. Don't complain about prices if you feel compelled to shop at Tiffanys.

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