Although it may not seem obvious, the problem of skyrocketing college costs is similar to the problem of rising health care costs. In both markets, government intervention and payments have allowed the markets to become distorted and have skewed the relationship between supply and demand. As a result, both college and health care costs have risen much faster than the inflation rate for other parts of the economy. According to InflationData.com, overall consumer prices have risen by 114 percent since 1985. College costs have risen by almost 500 percent over the same time period.
At the same time that the federal government took control of the health insurance industry with Obamacare it also nationalized the student loan industry. The preservation of federally subsidized student loans with below-market interest rates has already become a campaign issue. President Obama has actually proposed more federal spending to boost the number of college graduates. According to Public Agenda, the federal government spent $20 billion on higher education in 2010.
Allcollege.org estimates that the average in-state cost of a public four-year college is now $12,285 including room and board. The average for Georgia colleges is slightly lower at $10,936 per year. This means that the average college graduate who finances school with loans can expect to graduate with about $50,000 in student loan debt. Payments on debt of that size would take a sizeable chunk of a recent graduate’s paycheck.
The first step in reining in out-of-control college tuition costs is to realize that not everyone should go to college. Many workers might fare better with technical or vocational training than with an expensive college degree program. While statistics show that college graduates have a higher lifetime earning potential than non-graduates, these numbers do not take into account the net reduction in earning caused by the accumulation of student loan debt.
When the government enters the marketplace through Pell grants and subsidizing student loans, the laws of economics begin to take effect. The federal money means that more people can afford to go to college which means that demand for college educations increases. As demand increases, the price of college also increases. The response of the government is to spend more money subsidizing college tuition, which in turn causes more demand and more price increases.
For all the money spent by the government on higher education, the return is disappointing. The United States desperately needs math and science majors to spur future innovation and economic growth. Yet, according to Matchcollege.com, most degrees issued are in business administration and liberal arts. The only science in the top twenty most popular majors was biology at number eight. The next science degree is mathematics at number 39.
College financing should be returned to private industry and government payments for higher education should be limited to those that serve a constitutional purpose. For example, national defense is constitutional role of government so educating the military’s future officer corps through service academies and ROTC programs is a legitimate government function.
If state governments choose to subsidize college costs for their residents, they are free to do so to the extent permitted by their state constitutions. Even this assistance should be limited to majors that are needed. For example, there is currently a shortage of physicians so government, preferably at the state and local level, might subsidize medical students.
College loan terms should be based on the major and the ability to repay the loan. Since U.S. companies need math and science majors to maintain a competitive advantage in the global marketplace, those degree programs should be given precedence. Future doctors and engineers are likely to be able to repay college costs so their loans should be considered low risk and rewarded with low interest rates. Likewise, Arabic or Chinese language majors should be in high demand for the foreseeable future.
On the contrary, many degrees are almost totally worthless. Liberal arts majors like Ethnic and Gender Studies, Drama, Music or Literature may be intellectually or artistically stimulating, but don’t generate much income potential. These degrees would be considered high risk and would cost more in interest for student borrowers. As demand for these degrees falls due to higher borrowing costs, colleges should lower the cost of the program to compensate until equilibrium is found. Loan officers would be doing students a favor by not loaning them tens of thousands of dollars to finance a degree that won’t get them a job.
This is not government control of students. Students can still study whatever they want. They just won’t be able to have the government pay for it or subsidize it. Other financial assistance could still be funded by private organizations and charities who desire to advance their particular interest and can identify talented students.
Additionally, apprenticeship programs and on-the-job training could reduce the need for college financial assistance. Companies could recruit promising high school students in much the same way that the military does. Apprentice hires who perform well would be sent to college by their employer. Tax incentives could encourage these programs, but businesses could find that recruiting and training talented workers early would benefit their operations and bottom lines.
The United States is in crisis. Like many other aspects of our society, the rate of increase for college tuition cannot be sustained and reform is needed. By returning competition and free market ideas to the education industry, college costs can be controlled.