[N]ow is probably a good time to reprint – and expand – the list of empirical studies that have, in one way or another, found that schools in large part capture aid money rather than becoming more affordable. The list probably isn’t exhaustive, and there are many limitations that make it impossible to prove that aid fuels inflation, but combined with the logic that you’ll willingly pay more if you have someone else’s money, these studies show that there is very good reason to conclude that aid is counterproductive:
There have been some slight improvements in the scores of younger children, but they don’t last. By the time students are preparing to enter higher education or the workforce, they are no better prepared academically than they were two generations ago–despite the fact that we have spent three times as much on their K-12 education as we did educating the class of 1970.
The current situation is unsustainable, with lending risks falling entirely on the students and taxpayers. The rewards go to the universities, which have raised tuition to maximize their share of the flood of cheap money. University of Tennessee law professor Glenn Reynolds estimates that college tuition grew at more than double the inflation rate between 1980 and 2010. In fact, college costs rose more steeply than the price of health care.
University administrators saw no need to curb their appetite to raise tuition rates because no matter how high the cost of entry to college, it was always covered by cheap loans, subsidized by the taxpayers. Federal student aid increased by 372 percent between 1985 and 2010, from just under $30 billion to almost $140 billion, according to the Cato Institute’s Neal McCluskey. This is how Uncle Sam has been inflating the higher-education bubble.
Families should be able to weigh the true costs and benefits of college. This can’t be done while Congress continues to “help” students by subsidizing a debt that has reached $1 trillion. The Senate should take up the House bill, which represents a modest first step in deflating the bubble.
Who could possibly object to seeing 18- to 22-year-olds take on large debts that must be paid back so that we can keep the college-industrial complex healthy? Have you no decency, sir!?!?!
Lastly there’s higher education. Once again, someone who hasn’t had much time to study policy might reasonably think the key to improving and expanding higher education would be for the federal government to spend more on it. But again, reality differs: federal aid fuels tuition inflation and encourages massive waste.
The connection between aid and prices is somewhat intuitive if you think about it. Basically, if you give people $100 more to buy something, sellers will raise their prices $100. The buyers are no worse off, the sellers are better off, and the only losers are the people who furnished the money. With college aid, we call these losers “taxpayers.”
Of course there’s more to college pricing than aid, but the effect remains.
Studies have found that private colleges raise their prices a dollar for every extra buck students get in Pell Grants, and schools often reduce their own aid when government assistance rises.
Then there are the dismal outcomes that go with giving away college money.
First, only about 58 percent of first-time, full-time students finish a four-year degree within six years at the school where they started, and most who don’t finish by then likely never will.
Next, a third of people with bachelor’s degrees are in jobs that don’t require them.
A growing number of liberal-arts colleges are supplementing their traditional glossy brochures touting ivy-covered libraries and great-books seminars with more pecuniary pitches: Buy seven semesters, get one free. Apply today, get $2,500 cash back. Free classes after four years.
The schools are adjusting their marketing to attract students at a time when families are struggling to foot the bill for college—and increasingly concerned about the potential payoff. Some of the most aggressive offers come from the most financially vulnerable schools: midtier, private institutions that are heavily dependent on tuition and sit in regions with shrinking pools of college-bound high-school seniors.
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The pressure on liberal-arts schools is coming from several directions. Nationwide, the number of graduating high-school seniors this year is expected to decline to 3.32 million from a projected all-time high of 3.41 million during the 2010-11 school year, according to the Western Interstate Commission for Higher Education. And fewer college-bound seniors are choosing private four-year schools: Between 2006 and 2011, the percentage of students at those schools dropped to 20% from 22%, according to the College Board Advocacy and Policy Center.
For students headed to college, tuition is a bigger issue than ever. The average cost of public and private schools jumped 92% between 2001 and 2011, compared with a 27% rise in the consumer-price index. Last year the average amount that students at public colleges paid in tuition, after state and institutional grants and scholarships, climbed 8.3%, the biggest jump on record, according to the State Higher Education Executive Officers Association.
Student debt levels have reached a new high – rising $42 billion in the last quarter to $956 billion, according to a report this week from the New York Fed. At the same time, tuition rates have seen a staggering 72% increase since 2000.
As if those two upward trends weren’t hitting students hard enough, the average earnings for full-time workers ages 25-34 with bachelor’s degrees has also dropped 14.7% since 2000.
Shocking Chart on Tuition Vs. Earnings for College Grads, from Blaire Briod
Taking out student loans is a very bad idea for students and for their parents
There are record numbers of student borrowers in financial distress, according to federal data. But millions of parents who have taken out loans to pay for their children’s college education make up a less visible generation in debt. For the most part, these parents did well enough through midlife to take on sizable loans, but some have since fallen on tough times because of the recession, health problems, job loss or lives that took a sudden hard turn.
And unlike the angry students who have recently taken to the streets to protest their indebtedness, most of these parents are too ashamed to draw attention to themselves.
We already know housing was a bubble and we are dealing with the ramifications of the pop back in 2007. Yet the higher education bubble keeps moving higher and higher.
In 1980 the typical California household would be able to finance 17 bachelor’s degrees at a UC with one year of household income. In 2000 that number had dropped to 5. Today it is only enough to purchase one bachelor’s degree at the UC system. Now keep in mind we are looking at the cheaper public option partially backed by the state of California. You have other institutions in SoCal like USC that charge over $50,000 per year. Without a doubt higher education is in a bubble more so in the private sector.
A study funded by 10 major foundations reported yesterday that 47 percent of Detroiters are functionally illiterate–unable to read a bus schedule, fill out a resume, or make sense of the directions on an aspirin bottle.
. . .
The report notes that half of the illiterate population has either a high school diploma or a GED. That’s beside the point. Virtually the entire illiterate population has completed elementary school, the level at which reading is theoretically taught. That’s seven years of schooling (k-6), at a cost of roughly $100,000, for… nothing.
Robin Hanson has been arguing that perhaps along with redistributing income, we should redistribute grades. I have myself been known to argue that perhaps we should consider redistributing PhDs and Harvard professorships, to limited success with the sort of people who have those things.
“Let’s take a step back,” [James] Altucher says. “What’s the other American religion? Owning a home.” For years, the government encouraged home ownership for all citizens. “So we got more and more loans that were considered subprime, and look what that did. The idea, the religion of home ownership for all, turned into a national nightmare, a national apocalypse instead of a religion. The same thing’s going to happen here.”
Over the past quarter-century, the total cost of higher education has grown by 440 percent. “Like many situations too good to be true,” Louis Lataif, the dean emeritus of Boston University’s School of Management, wrote in February for Forbes, “like the dot-com boom, the Enron bubble, the housing boom or the health-care-cost explosion–the ever-increasing cost of university education is not sustainable.”
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But if college is neither a luxury good nor an investment, what is it? For [Peter] Thiel, the commodity college most closely resembles is the humble insurance policy. Americans have become terrified, he says, of what will happen to their children if they don’t send them to college. The recession, widening income inequality, growing job insecurity, the uncertain future of the welfare state, the increasing costs of health care–all have deepened the anxieties that made college such an attractive option for a rising middle class in the first place. “I think that’s the way probably a lot of parents think about it. It’s a way for their kids to be safe, to be protected from the chaos. You’re paying for college because it’s an insurance policy against falling out of the middle class.” The larger question this raises, he says, is, “Why are we spending ten times as much for insurance as we were 30 years ago? And does that tell us something has gone really badly wrong with our country?”
As a 23-year-old math genius one year out of Harvard, Jeff Hammerbacher arrived at Facebook when the company was still in its infancy. This was in April 2006, and Mark Zuckerberg gave Hammerbacher–one of Facebook’s first 100 employees–the lofty title of research scientist and put him to work analyzing how people used the social networking service. Specifically, he was given the assignment of uncovering why Facebook took off at some universities and flopped at others.
“The best minds of my generation are thinking about how to make people click ads,” [Hammerbacher] says. “That sucks.”