Fixing the Higher Education Nightmare

The cost of college is enormous and growing. According to Forbes, the cost of a four-year degree has doubled, outpacing wage growth eightfold. The result: $1.41 trillion in outstanding student loan debt. 

A college education, once considered affordable, now casts a cloud of $30,000 in unpaid loans over the average graduate. This loan burden is leading to the delay of crucial life milestones, like starting a family, buying a house and saving for retirement.  

How did we get here? Why is a seemingly noble investment saddling graduates with ever-rising debt?

A portion of this rise can be chalked up to increased demand for college.  

Richard Vedder, a professor of economics at Ohio University, maintains that colleges’ expectations for student enrollment has risen from about 15 million in 2000 to 20 million in 2017.  Without a corresponding increase in supply, prices are compelled to rise.

Many states have not been able to adequately fund public universities to meet ever-rising demand. 

With less state support, colleges must find revenue through tuition hikes.  The College Board released a report demonstrating that prices at public colleges increase at a higher rate when state government funding per student declines. 

The exponential rise in costs also coincides with a growth in colleges’ priorities. 

 Business Insider points to three areas where colleges have expanded their purview: student services, such as counseling, academic support, and healthcare.  These aspects, while expensive, are difficult to remove due to their popularity. About two-thirds of a college’s budget is directed away from teaching, towards other areas of campus life.

The Federal Government is also at fault for tuition hikes.  

In 1987, then-Secretary of Education William J. Bennett formed a hypothesis to justify alarming increases in tuition prices.  In an op-ed for the New York Times, he wrote, “Increases in financial aid in recent years have enabled colleges and universities blithely to raise their tuitions, confident that Federal loan subsidies would help cushion the increase.”  

The idea that exploding government involvement in payments for college was abetting the rise of tuition costs is termed, the “Bennett Hypothesis.”  

The Federal Reserve Bank of New York commissioned a study in 2015 that lent more weight to the Hypothesis.  With a dollar increase in Pell Grants, sticker prices rose 40 cents. A dollar increase in subsidized loans saw a 63 cent increase in sticker prices.  The Federal Government has crowded out the private lending market to the point where it accounts for 90% percent of all student loans.  

This monopoly on the student loan market not only incentivizes an increase in tuition prices, it masks the true cost of education from families, according to the Heritage Foundation.  The lack of examination of creditworthiness or the imposition of realistic market interest rates has painted a false picture of education costs. This careless practice by the Federal Government has artificially inflated demand, the Cato Institute argues.  With the availability of Federal loans and grants, students who otherwise wouldn’t have attended college, do.

If the goal is to bring down tuition prices, rather than send the maximum number of kids to college as possible, the student loan crisis could actually be solved.  

Forbes explains that in a typical market, rising prices would reduce demand.  This is impossible when the Federal Government continues to offer loans and grants to cover the gap in affordability.  By significantly curbing its lending practices, the Federal Government would relieve taxpayers from the rising loan defaults and loan forgiveness policies.  Provided that the “new average three-year repayment rate has declined 20 percentage points to 46 percent,” according to the Wall Street Journal, American taxpayers are increasingly liable for college graduates’ inability to repay their debts.  

The Heritage Foundation offers a blueprint to reduce government involvement and let the more robust private market become a main source for lending.  Private lenders identify a student’s true creditworthiness with considerations like, “field of study, academic history, and institution of choice,” thus incentivizing smart career paths.  

Why can’t these loan options thrive in the status quo?  

Heritage cites the “generous” PLUS loan program and fair-lending laws as areas that inhibit the private market from competing for loans.  Eliminating the PLUS loan program would not only stymie the rise in tuition prices, it would prevent families from borrowing “up to the full price of attendance.” 

Furthermore, Congress should act to institute a borrowing cap that does not exceed the national average in order to rein in “price inflation while reducing student loan defaults.” 

State governments can play a role in reducing tuition prices as well.  Douglas Webber of Temple University found that over the last three decades, public colleges have seen a “nearly 25 percent decline in state funding per student.” Terry Hartle, senior vice president of the American Council on Education shows that tuition grows slower when public support rises.  This can have a tremendous impact on students since “80 percent of America’s students attend public colleges,” according to Business Insider. 

A shift in priorities is necessary if America wishes to reduce tuition prices.  A college education can be made more viable when the Federal Government’s role is reigned in and State Government elevates its funding commitment to public universities.