Private schools rely on income from their endowment funds, many of which have shrunk dramatically in the market decline. They're usually loathe to dig into principal -- especially when they're hoping for more of a stock rebound.
Colleges have not traditionally been run as a business. Few businesses offer job security like "tenure" -- except for federal bureaucrats and the U.S. Postal Service (two "businesses" that continually lose money).
And few businesses can survive without reacting to market forces by cutting less-profitable product lines. Yet universities continue to offer marginal courses in the name of a "broad and diverse" education. Take a look at your child's course catalog, and you'll see what I mean.
Certainly, universities have rising costs of maintaining their buildings, classrooms and libraries. But university "management" and board supervision may be more focused on the profitability of the football team than the kind of prudent cost-cutting every other business faces these days.
In an era when "everyday low prices" or discount stores are the only places consumers will shop, why don't colleges get the message that their customers cannot afford their rising prices?
How long will it take until universities recognize that their "customers" are no longer willing, or able, to go into debt to buy their educational product?
Only when market forces teach the lesson of responsible pricing will college become more affordable. Let's hope that will not be too late for a generation of students who will be sidelined because they simply can't afford college now.
Losing today's students would have a terrible impact on America's future economic growth. And that's The Savage Truth.
Terry Savage
Terry Savage is a nationally known expert on personal finance and a regular television commentator on CNN, CNBC, PBS, and NBC on issues related to investing and financial markets.
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