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New Study: The Main Thing Making College Crazy Expensive Is Student Loans

Restating the obvious.

StudentDreamstimeA new paper from the National Bureau of Economic Research found yet more evidence for the notion that skyrocketing college tuition costs are the result of all-too-generous student loan policies.

The study, authored by Grey Gordon and Aaron Hedlund, used a computer model to measure the effects of various economic forces on college costs. According to the model, no factor had more to do with rising tuition prices than loan subsidies.

“Looking at individual factors, we find that expansions in borrowing limits drive 40% of the tuition jump and represent the single most important factor,” wrote the study’s authors.

In fact, the “Bennett hypothesis”—the idea, first proposed by President Ronald Reagan’s Education Secretary William Bennett, that increasing student aid encourages colleges to jack up prices—fully explains all the tuition increases between 1987 and 2010, according to the study:

Existing theories can fully explain the increase in net tuition between 1987 and 2010. Our model suggests demand-side theories have the most predictive power. In fact, our results show the Bennett hypothesis can fully account for the tuition increase on its own.

George Mason University economist Alex Tabarrok warns that the study’s findings seem a tad too favorable to the Bennett hypothesis, and notes that the authors believe their model may exaggerate the effect. Even so:

Some of these results appear too large to me and the authors caution that they need to assume a lot of monopoly power to solve their model so the results should be taken as an upper bound. Nevertheless, the Econ 101 insight that subsidies increase prices (even net for those who are not fully subsidized) holds true.

A recent study by the New York Federal Reserve reached a similar, albeit less dramatic, conclusion regarding the link between loans and tuition. In a sane world, these findings would discourage government policymakers from further subsidization of American higher education. 

Photo Credit: Dreamstime

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  • FreeToFear||

    Commodities like college education strangely subject to laws of economics! More at 11...

  • Fist of Etiquette||

    ...the Econ 101 insight that subsidies increase prices (even net for those who are not fully subsidized) holds true.

    And yet we needed a computer model.

  • Fist of Etiquette||

    ...the Econ 101 insight that subsidies increase prices (even net for those who are not fully subsidized) holds true.

    And yet we needed a computer model.

  • Fist of Etiquette||

    What the hell, another one for good measure:

    ...the Econ 101 insight that subsidies increase prices (even net for those who are not fully subsidized) holds true.

    And yet we needed a computer model.

  • FreeToFear||

    echo?

  • BakedPenguin||

    We needed a computer model?

    ....We needed a computer model?

  • Fist of Etiquette||

    Do you come with the computer?

    Oh, you. [giggle]

  • C. Anacreon||

    Jeez, not you, too? My 13-year-old son makes that crack to his dad just about any time there's a bimbo standing near a product or service on TV, in line at the movies, driving through downtown suburbia, etc. I thought he was the only one so afflicted. He does do a number of other Simpsons lines, though, as well.

  • Fist of Etiquette||

    Don't have a cow, man.

  • Diane Reynolds (Paul.)||

    So the thing making your ass look big is your ass, not the pants?

  • ||

    The mirror is.

  • esteve7||

    So.... you're saying we need to have more student loans right? ...

    People never see the positive feedback loop. Higher Tuition, More Loans leads to higher tuition, more loans, leads to....

  • CE||

    No, they're saying college should be free. Medical care too. And professors and doctors should be happy to provide them for a government-stipulated living wage.

  • ||

    I know people who advance this argument seriously. And price controls on commodities.

    "The difference between genius and stupidity is that genius has limits." - A. Einstein

  • thom||

    Professors, doctors, and teachers should all be paid as much as professional athletes, Hollywood actors, and popular musicians. That they are not is proof that America is a shallow and ungrateful society focused only on capitalist materialism.

  • Hugh Akston||

    I have computer models demonstrating incontrovertibly that a nuclear apocalypse would be awesome due to power armor and sniper rifles.

  • Just say Nikki||

    Well, plus everyone dying.

  • R C Dean||

    + 1 Super Mutant.

  • AlmightyJB||

    Natural Selection makes a comeback

  • Judge Forrest's Clitdong||

    And Piper...

  • Zunalter||

    Didn't both of those exist prior to the nuclear apocalypse and thus not contribute to the awesomeness/non-awesomeness of it?

  • Just say Nikki||

    So, uh, what do we win as our "I fucking told you so" prize?

  • Pan Zagloba||

    Nationalized university education with loans replaced with government grants for everyone who applies is accepted by the admissions panel of some kind?

  • kV||

    Jack fucking squat. Because your intentions were impure.

  • JW||

    First into the revenue camps!

  • Zunalter||

    A free voucher for $45K in 11.55% interest student loans.

  • Nativist, Racist & Xenophobe||

  • kbolino||

    In the old, “reality-based” world of institutional organization, administration was necessary in order to facilitate the actual work of the institution — teaching, learning, and research — and to support those who did it — students and professors. Because administrators were stewards (an old and beautiful word) of their institutions’ finances, they did have a say in program development and academic planning. But this say was limited to a definite range of pragmatic rather than substantial matters. Administrators were in this sense mostly nameless, behind-the-scenes folks who understood the real activity of the institution and were there to support it and those engaged in it. And because they did indeed think of themselves as “stewards” of the public trust, they tended to be sober-minded about the use of its monies.

    "Administration" has become a field unto itself, not just in academia but in business and especially government as well. It is a cancer that no one has the courage or really even interest to remove.

  • ||

    I've said it before, and I'll say it again: the problem is that banks, with gov't backing, give loans out for worthless liberal arts degrees.

    If you have anything other than a STEM degree, you're a piece of shit and probably a progressive liberal on welfare since you can't get a good job.

  • Doctor Whom||

    My degree in navel-gazing identity studies and pomo-decon gibberish is just as worthy as your degree in some silly old STEM subject. If I am stuck working at Tarbucks, I blame capitalism.

  • Doctor Whom||

    My degree in navel-gazing identity studies and pomo-decon gibberish is just as worthy as your degree in some silly old STEM subject. If I am stuck working at Tarbucks, I blame capitalism.

  • Zunalter||

    and squirrelz!

  • The Immaculate Trouser||

    You only have two career options if you get a non-STEM degree: Starbucks barista, or smoking cocks at a glory hole for 5 quid per. And everyone knows that's just a fool's trap. Pick the first option, and you will never be able to afford the crack rocks that keep you from committing suicide. Pick the second, and you will never be able to donate blood.

    Oh, or you could become a librarian, I guess. If you're a fag.

  • sarcasmic||

    I don't know about SF, but my cousin is a librarian and she needed a masters degree.

    Also, you forgot phone bank in your list of career options.

  • AlmightyJB||

    So your cousin is a sexy librarian?

  • sarcasmic||

    John would say so.

  • AlmightyJB||

    lol

  • RAHeinlein||

    I frankly don't know which degree is OK - I've known MANY STEM graduates (high-quality by all metrics) who are rewarded with low-paid positions. While I acknowledge there are a number of obviously "stupid" fields of study, STEM is just "another lie the government tells you" as I espouse to anyone who asks whether my children are "in scince."

  • R C Dean||

    The problem is that banks, with gov't backing, give loans out for worthless liberal arts degrees.

    The reason they do this, though, is the government guarantee. If they were exposed to a risk of loss on their loans, they would do fewer and/or price them differently.

    Moral hazard. Its a thing.

  • Harun||

    Banks no longer lend. I believe its now straight from the government. Obama took it over from the banks as part of the ACA. No, I'm not joking.

    http://www.sfgate.com/business.....193888.php

  • Crusty Juggler||

    What were the odds that libertarians would agree with William Bennett about anything??

  • Doctor Whom||

    I see what you did there. Anyway, something about stopped clocks.

  • Crusty Juggler||

    I see what you did there

    Thank you.

  • The Immaculate Trouser||

    It's an OK headline, but I think we all know that we could make it sound more like Buzzfeed if we really tried:

    Amazing! This One Weird Trick Perfectly Explains Tuition Costs

    Watch This Awesome Smackdown Of College Tuition By Grey Gordon and Aaron Hedlund

    Will They Listen? GMU Economist Shares Cool Tip To Come Up With The Perfect Economic Model For College Debt

  • CE||

    Top 5 Reasons College is Crazy Expensive. No. 4 Will Amaze You.

  • Doctor Whom||

    What happens next will frustrate but not amaze you.

  • GILMORE™||

    I think this site http://rare.us/ has out-done even Buzzfeed for stupid-millenialification of story headlines.

    And its not just the headlines.. its the recipe of "1 news-ish item for every 10 OMG THIS IS SO WACKY-video"

    They also seem to have done their own Millenial Polling

  • Akira||

    "Economists Ran a Computer Model to Find Out Why College Tuition is Increasing... What Happens Next Will Shock You!"

  • GILMORE™||

    "Uhm, well your study is like just one and like there's tons of studies saying nuh uh ur wrong its totally cause of ...uh, corporations and greed and... don't you people work for the Koch brothers? See?! I knew it. ThinkProgress debunked this like before it was even done, so like who even needs to read your fake economics stuff"

  • ||

    This is why I'm going to make it free!

    /Hillary

  • AlmightyJB||

    Transgendered student getting privacy curtain in girls locker room. Problem solved.

    http://hotair.com/archives/201.....-decision/

  • GILMORE™||

    "“Although we will never fully understand your personal struggle,” they said, addressing the transgender student, “please understand that we, too, all are experiencing personal struggles that need to be respected.”"

    Its almost like they're coming close to realizing that... Just Maybe.... basing public policy on people's subjective "Personal Struggles"...rather than basic-objective-criteria like one's biological gender.... is fucking stupid & arbitrary and likely to produce far more problems than it solves....

    ...but then falling just short of admitting that, and instead going, "WE FEELS UR FEELS, BUT WE FEELS TOO, SO INTERSECTIONAL AND COMPLEX AND STUFF, SO STAY OUT OF OUR DRESSING ROOM, KAY U WEIRDO?"

  • R C Dean||

    These girls absolutely nailed the best response, given our current whackjob educational context.

  • AlmightyJB||

    Here's my solution. Want to use the girls locker room? Lop it off bitch. You need to show commitment if you want to see the show.

  • The Immaculate Trouser||

    That really cuts to the heart of the matter.

  • AlmightyJB||

    Also, seems like if they are ok with a privacy curtain solution for snowflake, then it shouldn't matter if its put in the boys locker room right?

  • Akira||

    Question: if I choose to "identify" as a female, can I join the military and be held to the lower PT standards, then?

  • AlmightyJB||

    I thought rhey just lowered them for everyone?

  • Akira||

    Dunno.. I'm not a military guy. Perhaps someone who is serving or recently served could clear this up.

    But according to this site, there are still different standards for males and females:

    http://usmilitary.about.com/od/army/a/afpt.htm

  • Not okay||

    There's separate standards. Male standards are much higher.

    A 17-21 year old man that does 41 push-ups would be kicked out of the army (the minimum is 42). A female that does 41 would score a 98 out of 100 on the test (a perfect 100 for females would be 42, the male minimum).

    The same male must run 2 miles in 15:54, females 3 minutes longer at 18:54. A man would not pass with that time until they were 47.

    These scores are also tied to promotion. So a male that couldn't pass would receive zero promotion points, but the same fitness for a female would be a lot of promotion points. On top of that many PT awards, and high grades at coed military schools go to females who can essentially do PT as an average to below average male. These commendations and certificates also help for promotions.

  • some guy||

    The very fact that they relax standards as you age indicates that they realize physical fitness isn't essential to doing the job, just one of many factors. It seems to me that they are mainly using it to make sure you meet a bare minimum and however far you go above that minimum is a measure of your dedication to the job. In that context (measuring your dedication) it makes sense to have it scale at least partially based on demographics. After all, it takes more dedication for a woman to meet a certain level of physical fitness than a man, just like it takes more dedication for a 40 yr. old man to reach that level than a 20 yr. old man.

    Of course, then you have to wonder why they don't let it scale with height too...

  • Rt. Hon. Judge Woodrow Chipper||

    Anything that hinders the liberty-killing standing military is fine.

  • Hugh Akston||

    Please take your off-topic garbage to the landfill where it belongs. PM Links is the next thread down.

  • AlmightyJB||

    You're a riot

  • ||

    But... this article is not about Trump! We have to talk about something else!

  • AlmightyJB||

    Yes, and when have we ever had an opportunity to comment here about student loans driving up the cost of college before?

  • dan'o en barrel||

    "In a sane world, these findings would discourage government policymakers from further subsidization of American higher education. "

    important qualifier: sane

    When the person making the proposal's incentive is to garner votes, sanity is replaced by whatever bait will catch the fish... even if those particular aquatic creatures love to eat rotting bullshit.

  • Rockabilly||

    Don't worry, when Bernie gets elected, everything will be free !

  • Notorious UGCC||

    When this bubble bursts, it will make the real estate bubble and the Tulip Bubble look like minor hiccups.

  • BigT||

    The other two factors are the decades-long hard sell campaign on the benefits of college for everyone and the initiation of Gender/Race/Sexuality/etc studies as legitimate fields of study.

  • Freedum_Fried||

    The real lesson is not that there should never be federal subsidies to higher education--many countries have good, affordable institutions of higher education that prepare their citizens for the future. (Notwithstanding, there are good libertarian grounds for not wanting such a system.)

    The real lesson is that it is never a good idea for the government to write a blank check to any industry, without regulations to hold that industry accountable, and to prevent that industry from blowing the money on new carpets and admin bloat and raising price.

    Because the federal government has done such a good job of making higher education affordable through the blank checks without accountability, we have gone and extended the model to health care and prescription drugs! Go Team America, Go!

    But here is the solution: make Universities match federal money received for tuition support dollar for dollar from their endowments.

  • Rhywun||

    "Accountability" - that's cute.

  • Rt. Hon. Judge Woodrow Chipper||

    many countries have good, affordable institutions of higher education that prepare their citizens for the future.

    That's what junior high was originally supposed to be for.

  • LynchPin1477||

    You know who else uses computer models as evidence in favor of their preferred policy positions?

  • d3x / dt3||

    H.A.L. Labs?

  • Reflections||

    Thanks to wall street college became just a another business not to educate but to put and keep people young or old in debt for life. Corporate americas main goal is to shake down and fleece as many people as possible profiting off peoples misery with the full support of our elected politicians. The entire system is rigged in favor of the 1%.

  • d3x / dt3||

    That's deep, man. How'd you do on your African-American Transgender Studies exam?

  • WTF||

    I think you got lost on your way to Kos.

  • NickBrown||

    Education is a very expensive today, and students are trying to find any ways to pay for it, they are trying to find jobs, or taking part in different programs or grants, their parents try to help them as well. Of course, they have to take any type of fast online loan or borrow the money. And student's loans are very difficult to repay. They have to study and at the same time have to think about the debts, the money and their future. So economists should think how to help the students and perform actions to decrease the studying payment.

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