Obama Administration

Expect Soaring College Costs From the President's Price-Subsidizing Student Loan Scheme

Students who resist the temptation of "help" with college costs will be in a much better position when the higher education bubble bursts.

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College
Gavin Huang

When I was a college freshman in 1983, average tuition, fees, room and board at private, nonprofit colleges added up to $18,143 in 2013 dollars. This year, that number has risen to $40,917. Public colleges are cheaper than their private counterparts, but they've seen similar soaring costs. You can expect more of the same as President Obama commits the federal government to further subsidize student borrowing, thereby encouraging colleges to hike prices to match.

"Average published tuition and fees at public four-year colleges and universities increased by 19% beyond the rate of inflation over the five years from 2003-04 to 2008-09, and by another 27% between 2008-09 and 2013-14," according to the College Board. "The 14% real increase in average published tuition and fees at private nonprofit four-year institutions from 2008?09 to 2013?14 was larger than the 9% increase over the previous five years." 

President Obama proposes to make it easier for students to handle these costs by "taking steps to make student loan debt more affordable and manageable to repay," boasts the White House. To that end, he's ordered the Department of Education to expand the Pay as You Earn program that caps payments of student loans at 10 percent of borrowers' incomes. The program also forgives the balance after 20 years of payments (10 years in "public service" jobs).

The federal government also offers the Income Based Repayment program which caps repayments at 15 percent of income and forgives outstanding debt after 25 years.

In fact, the federal government completely dominates student lending, with student loans guaranteed or held by the federal government exceeding $1 trillion as of last year, as opposed to an estimated $165 billion in private loans, according to the administration's own Consumer Financial Protection Bureau. Federal student loans grew by 20 percent between May 2011 and May 2013, while revolving credit—mostly credit card debt—grew by less than 2 percent during the same period.

That's a lot of debt, and growing fast. So what's wrong with the federal government making it easier for students to handle the burden of paying for college?

Here's the thing: All of that debt assistance is chasing its own tail. It drives up the price of college, which increases the demand for student loans to pay the tab, which then inspires calls for "steps to make student loan debt more affordable and manageable…"

"The basic problem is simple," wrote the Cato Institute's Neal McCluskey at U.S. News & World Report. " Give everyone $100 to pay for higher education and colleges will raise their prices by $100, negating the value of the aid."

It's a spiraling cycle that ends only when the realization sets in that people are paying way too much for something that can never justify the money it has soaked up.

"Subsidies raise prices, leading to higher subsidies, which raise prices even more," wrote Veronique de Rugy of the Mercatus Center. "Yet this higher education bubble, like the housing bubble, will eventually pop. Meanwhile, large numbers of students will graduate with more debt than they would have in an unsubsidized market."

McCluskey and de Rugy both made their cases before the latest round of student loan "relief." The president's recent move can only encourage colleges to further hike prices, inflating the bubble even more.

But if government officials are making the problem worse, the general public may be wising up.

"Given how expensive it is to go to college, there has to be a return sufficient to make it worth the time and especially the money," Instapundit and University of Tennessee law professor Glenn Reynolds told Reason TV. "You're seeing declining enrollment in some schools and you're seeing much more price resistance on the part of both parents and students."

That makes sense, since the Bureau of Labor Statistics continues to project that, through 2020, "occupations that typically need a high school diploma or less will continue to represent more than half of all jobs," even as bachelor's degrees become increasingly pricey.

Students who resist the temptation of the president's "help" with college costs will be in a much better position than their peers when the higher education bubble finally bursts.

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  1. boasts to the White House.

    I believe this should be “boasts the White House.”

    Sheesh, J.D., did you go to college?

    1. Well, if his English professor was anything like mine, they were more interested in ideology than language.

      1. English profs are the worstest

        1. Impossible. Unless nicole recently took up a new job.

          1. “Me fail English? That’s unpossible.”

  2. Give everyone $100 to pay for higher education and colleges will raise their prices by $100, negating the value of the aid.”

    *** rising intonation ***

    What if we make it *illegal* to raise prices …?

    1. Now right there’s a plan that, though tried and failed a million times, might just work.

    2. There was another “Rich” that also thought highly of price controls.

      1. The Third “Rich”?

        1. I thought the Third Rich was the product of unfettered markets.

  3. Silly JD, raising demand will lower prices because economeez of scale. And in the long run it actually saves money because with higher prices the colleges can hire more administrators and undertake more construction, which leads to moar jobz! So when the kids graduate the economy will be stronger than when they enrolled, meaning they have a better chance to get a job that pays a living wage and provides free birth control. Your welcome.

    1. Could you keep a straight face while spewing this kind of pretend logic? If so, you have a bright career as a press secretary.

      1. Only if I used “matriculated” instead of “enrolled.” We could all use a little improvement I guess.

    2. Robert Reich, is that you?

    3. It’s brilliant! Government creates demand to match supply! Wheee!

      1. … the same way a higher minimum wage will put more money in workers’ pockets so they can buy more, thus stimulating demand for everything!
        /sarc

        LOL…

  4. So you give huge subsidizes to a business, lend money to customers based on the condition they use said money at the business. Shake down the locals to pay for it all. Think I’ve seen this business model before.

  5. How could public assistance raise the cost of going to college? It was never the intent.

    1. We never intended for affordable housing policy to make housing cost more, it’s right there in the name, “affordable!”

    2. Yeah, you might be making one of those sarcasm snarks you are world famous for but it ain’t gonna happen to health care prices.

      Obama care is Affordable. It says so right there in the name, the Affordable Healthcare Act.

      So don’t be gettin your hopes up. With the right Top Men, Women, and other Genders in charge anything is possible.

  6. Kids are supposed to learn in college, right? Hopefully this government initiated BS will teach them a real lesson in how the world actually works, rather than their feelz. But don’t count on it.

    1. Hopefully this government initiated BS will teach them a real lesson in how the world actually works,

      Unfortunately, I think the lesson it will teach many of them is to vote for whoever will give you the government cheese.

  7. Back in Tucille’s day, you had to walk through the snow to get your alt-text. And it was uphill, both ways.

    1. It’s funny, I never clicked on his bio and always assumed he was an early 30-something, possibly snatched up out of the Reason Commentariat, thus giving hope to us all. Then I found out he went to college in the year I was born, and now my dreams lie broken on the floor.

  8. Whatever is happening now is ipso facto not a bubble. Bubbles are what happened in the past. I thought everyone knew that.

    1. Yeah, bubbles can only happen when the government doesn’t regulate everything. I’m so glad President Genius with all of his economic expertise and private sector experience helped solve that problem long ago.

  9. CAN WE GET SOME LINKS HERE?

  10. Good intentions will always trump economic reality in the minds of Obama’s loyal nitwits.

  11. You’d think the fact that so many people need relief of their student debt after graduating might raise some skepticism as to the value proposition of the thing.

  12. Students who resist the temptation of the president’s “help” with college costs will be in a much better position than their peers when the higher education bubble finally bursts.

    2Chili, you’re an optimist. What will happen is that the people who did what they were told (go to college) will be incredibly pissed at not getting the gold-plated jobs they were promised.

    Then, a bill will be passed, to right this terrible wrong (listening to top men not leading to optimal outcomes). It will be paid for by “taxing the rich”, which, as always, will end up being a general tax on everyone.

    It will result in a net transfer of wealth from people without college degrees to people with them, and therefore the whole “go to college if you know what’s good for you” ends up being a self-fulfilling prophecy.

    1. Interestingly, that was one of the two main intention’s of Warren’s (and Obama’s) bill – make a slight modification to a law that already exists to institute a new tax on the rich by up to 30%. It was a massive tax increase attached to the “Student Loan” thing.

      Brilliant Democrat politicking. If it passes, the old rules don’t change but new taxes on the evuhl ones. When/If it fails (because it’s a massive tax), it can be used against those who voted for it as being “anti-student” or “anti-poor”. Atrocious and horrifying.

      If only we could get rid of those human stains known as Warren and Obama.

      Ugh. In the end, it’s all a massive cash grab. Just like green energy, just like the ACA. These guys just won’t stop until we’re all feudal serfs.

  13. “ou can expect more of the same as President Obama commits the federal government to further subsidize student borrowing, thereby encouraging colleges to hike prices to match.”

    We don’t have any proof of this so we’ll get Glenn Reynolds to talk out of his ass again. Ask him about Iraq.

    1. Perhaps you’re making a Black Swan argument here, but I highly doubt it. Seems more like you’re simply saying, “there aren’t any bills up at this second which would further subsidize SLs. Therefore it won’t happen”. Ignore the track record of increases in subsidies and you come up the nonsense you just spewed.

    2. The proof is right there in the rising price of college education.

      1. which hasn’t been linked to colleges that have higher student loan debt. I don’t see why you libertarians are bitching though… Nick Gillespie thinks we should all be plumbers who clean out each other’s gutters and sewer pipes. He and Mike Rowe are going to get America working again

        1. The people’s poet is truly dead..

  14. What kills me is that even college graduates don’t have the basic math skills to understand the magnitude of the monthly payment associated with the loans they took out. They’re absolutely stunned when the first bill shows up 6 months after they graduate. And it’s not like you even have to know the maths. There are calculators on the internets.

    “Let’s see….I took out $70,000 in loans for my degree in French Literature, which got me a job that pays $27k a year, with which I have to make a monthly payment of HOLY FUCK BALLS……”

    1. As a parent of a child who is going to a state university on his savings and unsubsidized private loans, I find it reprehensible that there are people who don’t understand what they’re getting into when they do this (and I realize there are). When began getting the loans his freshman year, I began paying on them immediately and will continue to do so, that he won’t come out of of it all with crippling debt.

      My husband is not pleased with this, and keeps telling me, “It’s HIS education, let HIM pay for it!” I just look at him and reply, “You want him to move out when he’s done, don’t you?”

  15. Seems to me that they might consider the price increase to be a feature rather than a bug. Low income students will get subsidies, high asset accessible students will pay more and any subsidies will largely be paid by high income workers.

    1. You forgot the part about the extra money being hoovered up by college administrators, a solid Democrat voting bloc.

  16. Question: If k-12 schools were privatized and allowed to set their own prices of admission, would there be price inflation (as with colleges/universities) if k-12 school vouchers were handed out?

    1. I don’t think so. Private schools are already doing much more with much less. I think you’d see an equilibrium that struck a balance somewhere in the middle.

      And teacher salaries for the teachers used to the public system would actually go down, which I would love, if only to finally be able to prove those bunch of whiners that they’re not underpaid.

      1. The other thing that could happen is that post-privatization, there’s finally an incentive to extend the duration of the school year without the long break times common in public institutions. Why, for example, even after the world has evolved into a highly advanced and productive place, do students and faculty still have a three-four month long summer break and two-three week winter and spring breaks?

        To me, when you look at the amount of hours that the average public school or university lecturer (not a professor) accumulates over a period of time in relation to other professions, that makes me personally believe that teaching is really a relatively well-paying part-time profession rather than a low-paying full-time profession. If more public school teachers started calling for year-round plans on top of higher pay, then I could better understand the logic of increasing the pay of teachers. Until that argument gains more clout, however, I see no incentive or need in the market for the value of teachers to be any higher than they already are now.

        1. Pay them more to take more time off. Less time in the indoctrination camps would be a good thing for the students.

        2. The break is all about faculty and teachers. Public school teachers bitch and moan about not getting summers off. It’s kinda funny. Every August my Facebook feed is full of my teacher friends making posts about dreading having to go back to work. I actually mentioned to one of them once in a comment about such a status, “You do realize that in effect, you’re complaining about having 2 months of vacation, right?”

          You can imagine the shitstorm that followed.

  17. The college I graduated from 3 years ago (as an adult returning after years away) can point directly to the things that caused increased tuition: a brand new student union with a state of the art fitness center, olympic sized swimming pool, sauna and spa services. There are many improvements to the campus such as decorative art, flower beds, renovated theater arts center, etc. and there are plans in the works for a brand new, energy efficient, model of modern design building to house the school of business. Meanwhile, they are 273M in the hole for delayed/deferred maintenance to the existing buildings, spend 240M annually on salaries yet can’t seem to offer the classes most needed for graduation. Did I mention the university is located in a school district with a nearly 50% HS dropout rate?

  18. The other side of costs going up is the increased regulation
    of college education since the 1970’s which explains the
    increase in lower level staff and administrators. At many
    schools the ratio is 1.8 staff+administrators to 1 faculty.

  19. The funny in the “it’s so terrible” kind of way thing about this is that the bills proposed are basically cosmetic changes to a rule that already exists. It was only a political bill – if it passes, a massive new tax on the “rich” (whatever that means) and if it fails, “libertarians are evuhl.”

    The older rule they passed upped the interest rates to 6.7/6.8% for most loans. That’s why they didn’t attach it to the “market” – so they could even it out by charging higher interest. That Warren and crew made it sound like the market advocates were “evuhl” by wanting lower interest rates on the loans is chicanery at best.

    Warren is nothing more than a disingenuous little rat, worthy of little more than contempt. Terrible that she has any kind of political power or public sway.

  20. 1. Require universities that accept fed taxpayer funds to put up 50% (or more) of the loan amount
    2. Make that portion of student loans dischargeable in bankruptcy.
    3. Stand back and watch the rapid disappearance of degrees in post-industrial critical feminist poetry
    4. Stand back and watch the rapid disintegration of *-studies programs
    5. Smile

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