Tuition Freezes and Economics

We have all heard the horror stories of families and students facing massive increases in tuition at colleges, about how tuition and fees at univeristies have outstripped the rate of inflation, etc. However, it looks like in a couple of years University System of Maryland Students (including those a the flagship University of Maryland-College Park and the systems other institutions) could be facing a major tuition hike at one time, rather smaller increases over the course of a few years. Inside Charm City liks to the story. Shockingly, I find myself in agreement with State Senate President Mike Miller (which just makes me shudder):

The freeze on state university tuition – which Gov. Martin O’Malley wants to extend into a fourth year – is sure to score points with recession-weary voters. But critics wonder if it’s in the best interests of the universities.

Keeping tuition artificially low limits growth at a time when colleges are seeing record numbers of applications, and it stalls university improvements. And while state university students benefit from the freeze, those attending community colleges are not as fortunate. O’Malley has not provided money to hold the line on tuition for the 128,000 credit-earning students at community colleges.

The governor is up for re-election next year, and keeping tuition steady for the length of his tenure would be a tidy political victory to run on – especially when he will likely face criticism for raising taxes and failing to lower electricity bills. But the freeze is not final yet. It must be approved by the state legislature, where some are raising questions.

Senate President Thomas V. Mike Miller, a famously loyal University of Maryland alumnus, said he thinks that O’Malley has “gone overboard” with the freeze and is setting the stage for a huge tuition increase.

O’Malley seemed to think it was a good thing that he was able to show two Maryland students who didn’t see a tuition hike in their four years of college, but whenever costs are artificially held in check, there will come a reckoning.

Case in point, see the massive increases in utility bills when the electricity rate cap was lifted. After literally years of no increases in electricity rates, the state was forced a few years ago to lift the ban on rate increases because Baltimore Gas & Electric, Potomac Electric Power, and Allegheny Power (the three biggest utilities in the state) were on the verge of going out of business because the costs of generating and delivering electricity were far and away more costly that the companies were earning. The result when the cap was lifted was, no kidding, 100% to 200% increases in bills. The increases were so big and so bad, that the power companies had to arrange for plans to ease the increases in on some people.

The same thing will happen when the tuition freeze is lifted. Instead of a 3-5 or even 7 percent annual increases in tuition costs, you are going to see increases of 10-15 percent or even more in a single year. This will effectively price some students out of Maryland universities.

The tuition freeze also affects school budgets and capital improvement plans.

In short, this is just a dumb move. A tuition freeze distorts the market and when that freeze is lifted, the market will correct itself and it won’t be pretty.






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