It is an amazing thing how politicians believe that all you have to do is throw money at a problem and it will go away. Or perhaps I give the scoundrels too much credit, as their ultimate goal is to buy votes from an unsuspecting, naïve electorate. Whatever the case, Barack Obama is at it again, this time proposing to spend more money to stave off the negative effects of high college tuition on America’s higher education students.
Late last week, the president unveiled a plan to give relief to Americans affected by high college costs while at the same time providing incentives to colleges and universities to contain tuition costs. Key provisions of the plan include boosting federal spending on Perkins loans from $1 billion to $8 billion, keeping interest rates low for current student loan recipients, and doubling over the next five years the number of work-study jobs available to college students. Further, the president’s plan would force institutions of higher learning to contain tuition costs or risk losing federal funding.
Now, this isn’t the first time since becoming president that Obama has upped the ante when it comes to spending on higher education. In fact, he has more than doubled Pell Grant funding and spent billions more on college subsidies in his so-called stimulus act and Patient Protection and Affordable Care Act.
Given the fact that college tuitions continue to rise, you’d think that Mr. Obama would have learned that more money thrown at higher education doesn’t help college students. The direct opposite happens. Yes, college students take the money and go to school, but the end result is that many of them have debts they will never be able to pay off. In fact, student loan debt now exceeds credit card debt in America. Additionally, since many high paying jobs have gone overseas, college graduates are finding it harder and harder to acquire positions that will give them any chance to pay down their debts. Only about half of the jobs obtained by recent college graduates even require a college degree.
But more importantly, it is precisely because the government is spending billions every year to subsidize higher education that costs have gone through the roof. Since 1980, congressional funding of college Pell Grants has increased by 475 percent, after adjusting for inflation. At the same time, the cost of tuition has skyrocketed by over 430 percent. Economist Richard Vedder has pointed out that the same dynamic that causes health care costs to soar is also at work in higher education: third-party payments. When someone else is footing the bill, consumers are more willing to purchase the good or service provided. The inhibition of cost is removed, demand increases, and tuition, like medicine and medical care, gets more costly.
What has been created by Washington’s policies is a financial bubble in higher education. As with various bubbles in the stock market, dot com industry, and housing before it, the federal government has pumped tons of cash into higher education, bidding up the price of the service. We are at a point where the benefits of a college degree do not offset the high costs thereof. At some point, when enough Americans realize it and stop being lured into the government’s financial trap, the demand for higher education will drop and with it the cost. Of course, Uncle Sam will continue pumping even more money into the system to feverishly re-inflate the bubble. That has been the track record of our government in the current financial bubble, there is no reason to believe it won’t do the same thing in higher education.
To solve the problem of high college costs, government must end its subsidies to the industry. In the absence of the market-determining interest rates, government should be raising rates for students, not lowering them. Government sponsored grants should be abolished altogether. These two acts would decrease the demand for higher education, causing its artificially high price to tumble back to reality. Since there are few jobs requiring a college degree right now anyway, this seems like a good time to burst the bubble.
With thirty years of proof that government subsidies to higher education cause higher tuition rates, you’d think the last thing President Obama would propose is more spending on college education. Perhaps his ultimate goal is to buy votes from an unsuspecting, naïve electorate?Powered by Sidelines