A ‘Textbook’ Case Of Washington Generated Hyper-Inflation

By KATHLEEN BURKE at Marketwatch

Students are shouldering huge costs when it comes to the textbooks in their backpack, but companies are stepping in to lighten the load.

Textbook prices increased 1,041% from January 1977 to June 2015, more than three times the rate of inflation, according to an NBC News analysis of Bureau of Labor Statistics data. As student loan debt continues to rise above the $1 trillion mark, the cost of a college education and all of its trappings is becoming increasingly unaffordable.

“[Textbook prices] have all been going up at a much faster rate than any other consumer product,” said Mark Perry, a finance and business economics professor at the University of Michigan-Flint. “It’s directly tied to the fact that students get financial aid.”
Rising tuition leads to more financial aid for students, and publishers know this, so they raise book prices, Perry said.
The perils of being a social media child star(4:32)
What to know before making your child a social media darling.

The most expensive textbook at the University of Michigan-Flint campus bookstore is Principles of Instrumental Analysis, a chemistry textbook published by Cengage Learning CNGO, -0.88% , with a $400.65 price tag. A used version is available for $300.50.

“[Publishers] charge that much because they can get away with it,” Perry said. “They charge whatever the market will bear…it’s not a consumer-friendly market.”

He added that the consolidation of the market into a few major publishers, such as Cengage, McGraw Hill MHFI, +0.50% and Pearson PSO, +0.05% , allows for further price gouging.

David Anderson, executive director of higher education at the Association of American Publishers, a trade organization, said the BLS figures only measure prices of new hardcover textbooks.

“There are a variety of alternatives publishers put out…that are all less expensive and not included in the [BLS Consumer Price Index],” Anderson said. “It tends to distort what’s really going on out there.”

He added that hardcover textbooks are “going the way of the dinosaur,” as publishing companies begin to roll out digital learning services. Such platforms require an access fee that can be about half the price of a print textbook and provide individualized learning services for each student.

The National Association of College Stores estimates that students spent an average of $563 on course materials for the 2014-2015 school year, down from $701 in the 2007-2008 school year. The College Board, a nonprofit education organization that administers the SAT and AP tests, estimates the average yearly cost of books and supplies for a student at a four-year public college is about $1,200.

“Professors never know how expensive the textbooks they are getting are,” Perry said. “It’s like when doctors prescribe drugs, though most people have insurance to cover pharmaceutical costs. Students don’t have insurance to cover textbooks.”

In addition to the emerging digital transition, new companies are working to provide affordable and sustainable alternatives to the long-standing publishing market.
OpenStax is a nonprofit digital and print textbook publisher based out of Rice University in Houston. It is backed by charitable organizations including the Bill & Melinda Gates Foundation and the William and Flora Hewlett Foundation.

The company works with professional authors and editors to publish 100- and 200-level textbooks under an open license. Digital textbooks are offered to anyone for free, and print versions range from $30 to $55.

Daniel Williamson, managing director of OpenStax, said the books have been adopted at 1,200 institutions and have been used by 540,000 students since its founding in 2012.

“Our goal is to improve access for all students so they’re not having to spend hundreds of dollars on core content that hasn’t changed that much,” Williamson said. “We want to free up this knowledge so that new and interesting things can happen with it.”

He estimated that OpenStax has saved students about $53 million since 2012.

Chegg CHGG, -0.12% began as a rental textbook service in 2007, lending books to students at an average fee of $60. The company has since expanded, offering supplementary resources and lowering average rental prices to $35 and serving more than 2 million students with savings of about $550 million in 2014, according to John Fillmore, Chegg’s vice president of college services.

The website provides digital study tools and career services for students in addition to its textbook hub.

“Chegg exists in part because the rising costs of textbooks were making college unaffordable,” Fillmore said. “…Why would a student pay $300 or more for a new textbook with no guarantee to sell it back?”

Fillmore said Chegg pays students about $33 million a year in buying used books to rent or sell through its online service.

“We’re not trying to make billions of dollars, but return savings to students,” he said.

Source: How financial aid is driving up college textbook prices – MarketWatch