The Problem With Higher Education in the United States

This picture really says it all

Felix Salmon uses this chart to suggest that colleges are using these prices increases to become dropout factories, since it's cheaper to educate a freshman than a senior, but you get the same tuition.

I think that problem comes down to a number of things:

• Federal aid for college education, particularly the guaranteed student loan program, has been subsidizing increases in tuition and fees for years.
• The program was introduced in the Higher Education Act of 1965, at the height of the Vietnam war, so the alternative to going to college was to go to the 'Nam and get shot.
• When your product is competing against going to war, people will buy your product.
• The top end schools have been colluding on tuition and fees, along with student aid awards for decades, and this monopolistic behavior is inherently inflationary.
• In the interest, my step-mother, a former college president, has always maintained that this is not an issue, it's just a way of "freeing" students from making the choice on anything but quality, and that colleges supply a lot more than they did in, say, 1960.
• I have always responded that this is classic monopoly theory.  It's not that competition ends, it's that price competition ends, so you end up with gold plating.  It's one of the reasons that professors' salaries have skyrocketed: Without financial constraints, you get bidding wars.
  

The real solution is to implement cost growth containment measures in order to show price increases, to require with excessive endowments (Harvard, Yale, etc.), and to keep government aid flat until inflation catches up.

Of course, this won't happen, because the Ivy league has a death grip on governance in Washington, DC, and because business likes to have its employees in debt peonage.