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Containing the Costs of Higher Education



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The president continues to demagogue the issue of interest rates on subsidized Stafford loans for no justifiable reason. His presidential opponent agrees that the rate should be kept low, the Republican-led House has passed legislation to actually keep the rate low, and the House also offset the deficit impact to avoid sticking the taxpayers with the bill.

Interest rates are in the public eye because of the hype about student-loan debt. Large debt burdens are an important personal financial issue. But students and families are borrowing ever-larger amounts for one reason alone: the exploding cost of higher education. However, the administration now seems reluctant to even acknowledge the basic problem.

The facts, as published by the College Board are staggering:

  • The average tuition at public two-year college increased by only 5 percent in inflation-adjusted (“constant”) dollars over the entire decade from 1991–92 to 2001–02. In the most recent decade, the average constant-dollar price has increased by 45 percent — far too close to 5 percent annually.
  • College tuition and fees at public four-year institutions have skyrocketed 25 percent over the past three years. Published in-state tuition and fees at public four-year institutions averaged $8,244 in 2011–12, up from $6,591 in 2008–2009 — increases of close to 8 percent each year.

While the cost is a difficulty, the value proposition is even worse. What awaits the newly minted college graduate? The Associated Press reports nearly 54 percent of those under the age of 25 who hold bachelor degrees are either unemployed or underemployed. But in what has to be the most devastating blow to these young Americans, Time reports that nearly 85 percent of new college graduate are forced to move back in with their parents.

Will a one-year extension of past policy errors contain the rising costs of education? Will a one-year retention of the 3.4 percent rate create jobs?

#more#Fortunately, relentless increases in tuition and fees are not a mystery. What sector gets paid every time it does something, and not for the value of what it produces? What sector increasingly puts decisions in the hands of government, and not private-sector individuals? What sector is riddled with federal entitlements and open-ended federal subsidies?

If you said health care, you’d be right. But you’d also be right if you said higher education. Schools collect for every student every semester or quarter, no matter if he or she learns anything of value. They increasingly tailor their budgets to specification of government-loan programs and other federal dictates, not the needs of students and their families. And the federal money is astonishing. Education Sector data suggest that federal aid in the form of grants, loans, and tax credits totaled $64 billion in the year 2000 and by 2010 they had risen to nearly $170 billion. That’s an increase of 166 percent — over 10 percent a year! 

It is hard to believe that a massive expansion of federal subsidies is not at least in part fueling higher tuition costs. For that reason, conservatives have pointed out that the rate of tuition increases can be slowed if the federal government would slow down the funding for higher education. Doing so would certainly force the schools to pay more attention to controlling costs. This would reduce the burden on taxpayers, move toward making a college education more affordable for American families, and ease the burden of debt.

At the same time, it makes sense to target that aid more carefully on those who genuinely deserve assistance; improve the transparency of the subsidy process; enhance families’ access to information about fields of study, graduation rates, and employment rates; and thus tighten the link between subsidies and high-quality education outcomes.

There is some inkling of awareness in the Obama administration. In his January 24 State of the Union address the president, said:

Let me put colleges and universities on notice: If you can’t stop tuition from going up, the funding you get from taxpayers will go down.

Sadly, however, it would seem that his bold statement was little more than foreshadowing for his recent campaign stump speech targeted to the youth vote and focused solely on extending interest rates for a select few. It is time for the Democrats, who often offer grandiose campaign promises of on this very issue but have done little to nothing over the past three years, to step off the soapbox, roll up their sleeves, and work with Republicans on a practical, long-term solution for controlling the cost of a higher education. For in this era where the national debt increases nearly $4 billion a day, continuing to offer federal subsidies for the sake of reelection is foolhardy and will leave the U.S. penniless.

— Douglas Holtz-Eakin is President, and Chad Miller is Director of Education Policy, at the American Action Forum.



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