College becoming unaffordable?

By:

Jan 22, 2009

A report from the National Center for Public Policy and Higher Education highlights the spiraling cost increases of traditional four-year universities compared to the rise in family incomes over the period from 1982 to 2007. The New York Times writes about the report in the article, “College May Become Unaffordable for Most in U.S.

The authors of the report are understandably concerned that if the cost of college keeps rising at this pace even when accounting for financial aid, it will become unaffordable for most Americans, which will hurt them and the overall country severely.

“If we go on this way for another 25 years, we won’t have an affordable system of higher education,” the reporter quotes Patrick M. Callan, president of the center, a nonpartisan organization that promotes access to higher education, as saying.

The natural implication is that we need more subsidies so people can afford these traditional schools and presumably pressure to get colleges to beat down these costs.

I’ve written about this on this blog before (see this post for example). History shows that trying to make a product or service affordable by beating down on high-cost competitors won’t do the trick. In essence, this was the philosophy the Department of Justice took when it broke up the IBM monopoly in the 1970s. It turns out though that costs for computing fell not when a high-cost organization was told to reduce costs and become more competitive, but instead when disruptive competitors—most notably in the form of personal computer companies—entered the market. Disruption brings affordability.

There is a much sounder strategy in trying to reduce costs of higher education. Rather than giving more subsidies to prop up traditional universities, allow students and families to make more rational tradeoffs in their education. Allow them to choose disruptive options for higher education—like teaching universities, community colleges, and online universities instead of the traditional research universities—that both meet their specific needs and are more affordable. If we allow for this process to occur, despite the continuing cost trajectories of our leading universities, education won’t be unaffordable in 25 years.

– Michael B. Horn

Michael is a co-founder and distinguished fellow at the Clayton Christensen Institute. He currently works as a principal consultant for Entangled Solutions.