Why more student loans = higher tuition

Former college administrator Peter Wood reveals in the Chronicle of Higher Education how raising tuition and fees had little connection to spending:

…The goal was to set the new prices as high as the market would bear without drawing too much adverse attention. … Few if any colleges and universities were content to raise tuition at the rate of inflation. The goal was not to stay even but to get ahead. How much higher than the CPI could a university go? The university president … would remind his administrative colleagues, “We don’t want to leave money sitting on the table.”

Startling enough, considering the usual justification that college officials give for price hikes — something Wood mentions in his article.

But he goes further, saying what the consequences that has when the federal government increases financial aid or otherwise makes college more affordable.

In short: It just fuels higher prices:

In college and university administrative offices across the country, people start to calculate just how high they will now be able to set new prices to capture these additional resources.

Sounds like what helped fuel the housing price bubble. From law professor Glenn Reynolds:

The buyers think what they’re buying will appreciate in value, making them rich in the future. The product grows more and more elaborate, and more and more expensive, but the expense is offset by cheap credit provided by sellers eager to encourage buyers to buy.