College Market Failures: Covid-19 Edition.
Written by: Collin D.
Economists around the world are constantly trying to decide whether externalities - the impact of actions on others well being - are worth the price/cost. Colleges and Universities are not utilizing the right pricing of externalities and it’s because of their current market conditions. With the pandemic, students aren’t receiving the same experience as they did prior and because of that many students are taking gap years or dropping out. This shows that the market is not operating efficiently or at equilibrium because the amount of students in attendance does not equate to the amount of education being offered. Colleges aren’t able to cover their costs because of the decline in “tuition-paying students” (New York Times). Because there is a broken market, campuses don’t have to worry about the negative externalities like the risk of infection among students because there is so much revenue on the line.
Governmental action could’ve been implemented to help the negative externalities of reopening campuses, but that is yet to happen. I can infer that there’d be tuition breaks for students agreeing to stay at home and subsidies for colleges that didn’t open their campuses. In my opinion, this would’ve helped everyone - students wouldn’t be struggling with the decision of paying full tuition for online school and colleges wouldn’t be struggling to cover their costs. Though the discussion on whether or not colleges should always have governmental subsidies is ongoing, do you think that there should be temporary subsidies for colleges during this pandemic? Another solution to student debt for online classes would be to create a price ceiling on tuition during the pandemic. As much as I, a future college student, would want the lower rates, it would also drastically affect the college's total revenue and therefore temporary price caps would not be efficient for their market. As a result, their loss of funding might force colleges to lay off employees or cut back on the number of classes and that would make for an even worse learning experience than our current situation.
Though many colleges and universities are staying partially closed amidst this pandemic, there are a handful that are fully open and managing the outbreaks. For example, Clark University, a private institute in Worcester, Mass., tests its students every 3 days and wears masks everywhere on campus; there have been no outbreaks. Colleges that are fully operational like Clark University might've had an impact on the Fall of 2020’s freshman’s choice of school. For those who want more of a college experience, they’d choose a college that is fully open, as opposed to one where everything is closed. This could cause an influx of students attending the colleges that are open and in turn would increase the revenue of those colleges. Overall, I think it’s important to understand that the pandemic has caused so many tough decisions between everyone. While many businesses and colleges try to put their workers and students ahead of their profits, at some point businesses need their workers back and colleges need their students back so they can make money. If no students went back to school college campuses wouldn’t profit off of things like student housing or meal plans. It will be interesting to see how colleges will keep running if the pandemic does not stay under control and causes more and more dropouts amongst students.
WORKS CITED:
Cohodes, Sarah, and Susan Dynarski. “Colleges Are Fueling the Pandemic in a Classic Market Failure.” The New York Times, The New York Times, 8 Oct. 2020, www.nytimes.com/2020/10/08/business/colleges-pandemic-market-failure.html.
Nick Anderson, Susan Svrluga. “The Fall Opening of Colleges: Upheaval, Pandemic Weirdness and a Fragile Stability.” The Washington Post, WP Company, 21 Sept. 2020, www.washingtonpost.com/local/education/the-fall-opening-of-colleges-upheaval-pandemic-weirdness-and-a-fragile-stability/2020/09/20/03ab1f6e-f839-11ea-be57-d00bb9bc632d_story.html.
“Student Debt Infringes upon Their Freedoms.” Pinterest, www.pinterest.com/pin/567242515537214228/?nic_v2=1a30aBBL0.
Whistle, Wesley. “What Is Driving The $1.5 Trillion Student Debt Crisis.” Forbes, Forbes Magazine, 2 Sept. 2020, www.forbes.com/sites/wesleywhistle/2020/09/01/what-drives-the-15-trillion-student-debt-crisis/.
I agree with your proposed plan for governmental action, I think that the government accounting for the negative externalities of colleges closing could lead to a positive change in student debt because students could spend less while colleges could maintain a level of income similar to previous levels. Also, I think that more potential stimulus checks from the government could further reduce the student debt crisis, if only by a little bit, by covering some of the everyday expenses students face, allowing them to put more of their income into covering debt payments.
ReplyDeleteI feel really bad for the people who are trying to start college for the first time this year. It is a very chaotic way to start their higher education. However, the economics of the situation are interesting to analyze! Universities cannot be treated like a company, since they provide a large social benefit as well as a benefit to its consumers. Because of this, it seems like Universities are struggling to set a fair price for their students. On the one hand, students are not getting as much out of College as they normally would be, so they want to lower the price of their education. On the other hand, the Universities are struggling financially because they are making less money outside of tuition fees, so they need to raise tuition for some. Because of these contrasting views, Universities may face severe problems in the near future, and it may be a good idea for the government to get involved. Additional subsidies may solve this problem, allowing Universities to charge less tuition while stabilizing financially.
ReplyDeleteOutstanding article Collin!! This is a super interesting topic and very relevant for kids our age (and our econ unit). I think all of your solutions were very well thought out and valid options. This would be a beneficial article for the government to read because it appears that they have not taken into consideration the negative externalities of universities closing. If these externalities were accounted for then I believe there could be a positive difference in the extreme national student debt you brought up. Students could spend less for online schools and colleges would have less expenses from not opening so they would be able to maintain a similar level of income as previous years. No matter what solutions are proposed if this pandemic continues in the coming years, I think everyone is going to have to be prepared to make some sacrifices. :(
ReplyDeleteI have a few friends whose college’s are fully virtual, and I wonder if it is really worth the money to just go to virtual school. When paying for college, you are paying for room and food and other commodities that become inaccessible during completely virtual learning. The money also goes towards paying teachers for their time, and as classes shift to virtual situations, teachers could get away with making one video and paying it for many different sections of the same class. In this case, I don’t think that It would be worth all the money to just be at home. Not to mention that we are in a recession, so money could be needed elsewhere for food and shelter. Subsidies to colleges would cause more students to stay in school (and not take a gap year) and allow them to continue functioning with high participation, essential to colleges these days.
ReplyDeleteThis is a really important topic to talk about especially for students that are getting ready for their next step into the future. I think the government should get involved because it is kind of unfair for the students that are virtual to still have to pay for the full tuition price even when some are not on campus, however, during this time it’s definitely tricky for both sides to compromise.
ReplyDeleteI really like how you picked this topic being it is something very close and upcoming for us in high school. I do agree with you in the fact that the government should involve itself more because student debt is really a problem for some students and it isn't fair to those who are less fortunate and it is even less fair that college kids who are not making tons of money already have to pay full tuition price for being virtual and not physically in class. Knowing the colleges still need to make profit off of students though is another thing to consider, although I still don't think it is needed to be priced as high as it is, college does need to be expensive to cover all the costs. I do think it is out of proportion though, like you said, and there needs to be a change because everyone deserves a good education and shouldn't have to worry about the cost and how it will affect their future.
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