It’s government, stupid: the economics of university debt

The persistent increase in university tuition costs is now commonplace in student life in America and beyond. A sizeable portion of the US student population agitates for state intervention, in the form of loan reform, to remedy the financial difficulties of those burdened with outstanding loans, while others engage outright in debt resistance—such as the 2012 Strike Debt movement. Initiatives like these, though, conveniently neglect the economic principles elucidating the underlying causes of bloated college tuitions and consequent loan debts. The ultimate responsibility for skyrocketing tuition fees is state interference in the economy, not, as is often claimed “market failure”.

It is peculiar how entrenched the university system is in an age where information is relatively free and effortless to attain; the invention of the telegraph, the radio, and in particular, the internet—all hallmarks of the burgeoning Information Age—should have rendered the university obsolete on a free market, were it not for state-imposed monopolies on education. State governments approve the accrediting agencies of a nation provide legal legitimacy to the institutions of “higher education”. The effect of such intervention in the realm of education is two-fold: indirect control over the substance of education and inflated college .


In the US, the federal government does not directly accredit universities, it authorises accrediting agencies as “reliable authorities” to set educational standards for academic institutions to adhere. Each region in the US has its own accrediting agency, which conjures up obstacles that every new institution must pass to gain accreditation, all in the name of maintaining “educational quality” and “standards”. These agencies, approved by the Department of Education, give the designated universities the power to license, the ability to grant diplomas employers recognise and use in job hiring practices. In Australia we have the Tertiary Education Quality and Standards Agency (TEQSA), which operates within the federal Department of Education and Training. TEQSA, like its American counterparts, determines the rate at which new universities form through the enactment of licensure statutes for up-and-coming educational organisations.


These bodies function as a barrier-to-entry. They, in effect, prevent the formation of new, accredited educational institutions. This limits competition, which would lower tuition costs, in the education market. There is little to no incentive for students to attend educational institutions which have no recognisable license, as the education would not be recognized by employers. Newly-formed universities must de facto obtain accreditation to be competitive in the industry. The costs, in time and capital, associated with accreditation naturally restrict the available supply of educational providers, while demand continues to grow in for educated and skilled workers in our post-industrial skills-based economy .


As basic economics teaches us, artificial restrictions on supply, in accord with growing demand, leads to dramatic increases in cost. Educational providers that would have emerged in the absence of accreditation schemes—and competed in keeping the costs of tuition low—are conspicuously missing, with grossly distended institutions reaping the benefits derived from these educational monopolies and from the exclusive privilege of shaping the content of post-secondary education. It is ultimately that these influences—not the usual suspect of market forces and interactions—which enact and maintain parasitical institutions imposing gargantuan debts on an increasingly disillusioned youth population.


The solution to rising educational costs, healthcare costs and any other artificial increase in the prices of commonplace services is to eliminate state intervention in the market altogether or at the very least, to reduce licensure requirements and other government-imposed barriers to entry. There are many emergent market signals which would allow universities to distinguish themselves among others, leaving universities free to concentrate on improving their academic services instead of becoming entangled in state accreditation schemes for legitimacy.


Just as a reputable doctor will have a sizeable following of patients, a university which consistently provides outstanding educational services will attract swathes of students. The consumer, not an insular government agency, therefore has the rightful duty to set standards relating to academic standards and educational quality. In the free market, competing businesses which provide superior products or services are rewarded with voluntary patronage; in government, they are shielded from competition and other market forces so they can continue to effectively charge monopoly rates for shoddy services.

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