Much has been made recently of the rising cost of attending a four-year college. House Speaker John Boehner has decried the fact that “during the 1980s, the cost of attending college rose more than three times as fast as the typical family income,” and that “[t]his trend of rapidly-increasing college costs continued unfettered through the 1990s.” President Obama has threatened colleges and universities with funding cuts unless they clamp down on tuition increases.
But all of this attention typically focuses on colleges’ “sticker prices” or posted tuition rates. In reality, only the relatively wealthy pay the high sticker prices. The prices that most students pay are lowered – often quite dramatically – by financial aid. In fact, much of the increase in sticker prices merely reflects an improvement in the ability of schools to price discriminate, or charge different prices to different students for the same educational services. This is a positive development, as price discrimination makes higher education affordable for a larger number of individuals. Policies aimed at controlling increases in tuition will hamper the ability of schools to price discriminate, harming lower-income students by reducing their access to college.