Senator Michael Bennet – Helping Make College Unaffordable
As a parent of a soon to be college student, I’ve been paying particular attention to tuition rates. Not being an advocate of students taking loans for education (if possible), I intend on having my child pay for her college education as she goes. I can think of few things that create a greater obstacle to life than thousands of dollars of debt immediately after graduation with no guarantee of any way to pay it back.
Unfortunately, the rate of education inflation has skyrocketed since 1985.
College tuitions soar each year, advancing far in excess of the inflation rate. The overall inflation rate since 1986 increased 100.14%, which is why we pay nearly double for everything we buy. On the other hand, during the same time, tuition increased a whopping 412.62%.
Essentially, what used to cost 10,000 in education dollars in 1986, now costs 51,000 dollars. What are our members of Congress doing about it? Unfortunately, far too much.
Colorado Senator Michael Bennet recently released an email press release about the work he and other Senators have done to spend more money on college education:
Earlier this year, we made an historic investment in higher education when we passed the Student Aid Fiscal Responsibility Act (SAFRA), which:
Expands the PELL grant program, so almost 9,000 additional Colorado students will be eligible to receive a Pell grant this year;
Increases the maximum Pell awards to $5,550 in 2010 and to $5,975 by 2017 and starting in 2013, the maximum award will increase to keep pace with cost-of-living increases;
Dedicates more than $8 million in additional resources to Colorado for College Access Challenge Grants to increase the number of low-income students who are prepared for, and complete secondary education;
Devotes $29,695,750 in resources to Minority Serving Institutions in Colorado;
Lowers the cap on income-based repayment. Students entering college beginning next year will pay no more than 10 percent of their income on their loans when they graduate. Borrowers who responsibly make their monthly payments will see their remaining balance forgiven after 20 years of repayment; and
Ends federal subsidies to private lenders, saving taxpayers more than $60 billion.
Senator Bennet apparently feels that by loaning and giving away more borrowed money from future generations, the current generation can spend more on tuition, have more debt, and even less of a chance to land a job upon graduation.
What Senator Bennet and most other politicians fail to consider are the unseen consequences of education price inflation. What all this “investment in education” has done is actually contrary to their desired results. Student loans and Pell grants has helped to created an education bubble similar to the housing bubble in that artificial demand due to easy money has caused price inflation.
B. T. Donleavy describes this education bubble in his recent article when he writes:
In the advent of the worst financial crisis seen in decades, there is much to be learned. Many economists agree that creating false demand will eventually create a bubble and crush a market much faster than the natural economic cycle. Take for instance the student loan market. Student loans, subsidized and unsubsidized, allow an 18-year-old to finance some or all of the next four years of his or her life, including living expenses. Morally, is it right to allow our children to start their lives immersed in debt?
In 1992, Congress increased the amount of money a student can borrow from the federal loan program with the reauthorization of the Higher Education Act. The act also enabled students defined as “in need” easier access to funding. Now we see student loans dominating the higher-education industry and accounting for 50% of all financial-aid packages.
Richard Vedder, an Ohio University economist, in his paper “Why Does College Cost So Much?” describes demand as one of the factors in the cost explosion of higher education:
Rising Demand: The “natural” economic consequences of a rising demand—higher prices and a larger quantity consumed—are exacerbated by soaring third-party payments. Since 1994, financial-aid payments (mostly federal loans and grants) have risen by an extraordinary 11 percent per year. When someone else pays the bills, we become less sensitive to price.
Richard Vedder is the author of Going Broke by Degree: Why College Costs Too Much (AEI Press, 2004). A version of this article appeared in the Wall Street Journal on August 23, 2005.
In 2009 Richard Vedder conducted an interview:
In Going Broke By Degree: Why College Costs So Much, Ohio University economist Richard Vedder lays out in plain language why, well, college costs so much.
Vedder, also a scholar at the American Enterprise Institute, sat down at FreedomFest in mid-July with Reason magazine Editor in Chief Matt Welch to talk about college costs and more.
But won’t all these college grads get great jobs so they can pay off their investment? Not many will in these economic times. Sending kids to college unfortunately doesn’t create jobs. Factor in that only 57% of college students graduate in 6 years and you also have many people with a lot of debt and no degree. What may we see in the future? Here’s B. T. Donleavy‘s take:
A boost in educational funding for financing may come at a price. If the current trend continues, students will increase the amount financed and they will be paying for the majority of their education in loans. As the January 14 edition of the Economist notes, “only about 400,000 more Americans were employed in December 2009 than in December 1999, while the population grew by nearly 30m.” With an unemployment rate of 10% (real figures are closer to 17%), matters look only more ominous.
Millions of students will graduate with the same popular majors and compete for fewer jobs because a significant amount of manufacturing and industry has left the United States. The supply of students entering the job market will be endless, and businesses will lower the base pay of new employees because of their abundance.
The other scenario is that businesses will not hire them at all because they are fully staffed, thus creating a bottleneck in the job market. Unemployment, Social Security, and Medicare will all suffer from the supply and demand effects of this type of crisis.
So if you’re thinking of spending some time “finding yourself” in college while getting “educated” with majors that have no productive value (financially) or any reasonable chance of gainful employment, while paying for this with borrowed money, think again. Not only will jobs be in short supply, but even the jobs that are available will pay less. Senator Bennet: stop “investing” in education. You’re doing far more harm than good.
Chuck Moe is a Contributing Author at People’s Press Collective, Your Source for Colorado Politics
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