DALLAS, July 18, 2013 ― Midway through July, stores are already filled with back to school supplies and some fantastic deals. For college students, there will be bargain shopping for new laptops and extra-long sheets, but unfortunately, a good deal on an education is almost impossible to find.
Yesterday, the Consumer Protection Financial Bureau announced that American student loan debt has surpassed $1 trillion. While this news is important and points to serious problems in the higher educational system, most of the public debate has focused on student loan interest rates and not the high cost of college. With the Senate reaching a tentative deal on college loan rates last night, many will assume the crisis has passed for the moment.
Focusing on the interest rate while ignoring the high cost of tuition is like complaining about missing shingles on the roof while floodwaters pour under the front door. While doubling interest rates are important to borrowers — especially considering the job market graduates face — the higher rate will add less than $40 a month to repayment costs for most people. The more critical, long-term issue is the skyrocketing cost of college and the falling quality.
Since 1986, higher education costs have risen almost 500 percent, compared to general inflation of 115 percent.
Not only have prices risen astronomically, but the product is not delivering what was promised. Employers complain that students aren’t graduating college prepared for the workforce. Paradoxically, more employers require a college degree even for positions not requiring college-level skills. More and more people are pressured to assume thousands of dollars of debt to obtain increasingly expensive degrees of questionable quality and value.
The issues for students and their families is, why has the cost of college skyrocketed and what can be done about it?
Many people point to the enormous administrative bloat. One study found that while college enrollment grew 15 percent and college faculty grew 18 percent between 1993 and 2007, college administrative staffs grew 39 percent in the same time period.
There are other likely culprits in climbing college costs: opaque pricing and nebulous “fees” and resort-like amenities for students, for instance. But perhaps the biggest cause of education price inflation is the one thing that was supposed to make it affordable: tax subsidized loans and aid.
It is a truism that if you tax something, you get less of it, and if you subsidize something, you’ll get more. Subsidized student loan debt and other student aid leads to higher tuition. These are much harder issues to face and to fix. The relatively trifling issue of student loan interest rates that can be “solved” with legislation, reconfiguring a system built on the concept of “other people’s money” is much more challenging and most likely will not be done by politicians — a class rarely known to take a bold or brave stand.
Most likely, the market itself will have to choose another model, in spite of political meddling. In any other market, an industry whose prices rose twice as fast as the inflation rate while its product declined in value would collapse and other, more efficient models would fill the void. That may be happening now, although we are only in the early days of such a change.
MOOCs or Massive Open Online Courses are allowing students to craft their own higher education. Like any fledgeling effort, there are challenges to work out, and MOOCs are not yet a real alternative to brick and mortar schools. There may yet be other alternatives to the failing model that will emerge. What is certain is that prices growing at double the inflation rate cannot be sustained indefinitely.
Parents and students will no doubt get great bargains on bedding, posters, and coffee makers this summer. Hopefully soon they’ll also find an alternative to the bad deal they’re getting from academia.
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