The Real Problem of Rising College Costs
December 21, 2006
Someone wise once defined insanity as doing the same thing over
and over but expecting different results. Members of the
110th Congress should keep this in mind when they try to
address the problem of college affordability.
In the 21st century, a college education is considered by many
to be a key to financial security in the new knowledge-based
economy. But ever-rising tuition prices offer a financial challenge
for many American families.
According to the College Board, the price of higher education
rose sharply again last year following trends over recent decades.
The annual costs at four-year public and private colleges increased
by 6.3 and 5.9 percent respectively, a rate well ahead of
inflation. Since 1986, tuition and fees at public and private
colleges have grown at staggering rates: 122 percent at public and
80 percent at private colleges (after adjusting for inflation).
Increasing college costs since the 1980s make the price of
gasoline look cheap in comparison. Since 1986, the real cost of a
gallon of gasoline has grown from $1.58 to $2.50. If gas prices had
risen as quickly as public college tuition, we'd be paying $3.51, a
dollar more than we do today.
As with growing gas prices, increasing college tuition costs
have led to frequent calls for the federal government to act. The
federal government has responded by providing
dramatically-increasing subsidies for higher education aid.
According to the College Board, total federal aid for postsecondary
education totaled $94 billion in 2005-06, a real increase of 95
percent during the last ten years.
But doubling higher education aid over the past decade hasn't
been enough, according to some liberals in Congress. New subsidies
for higher education are at the top of the Democrats' agenda for
the 110th Congress.
One Democratic initiative that will likely be considered is new
Education Committee Chairman George Miller's plan to cut interest
rates on federally-subsidized student loans. Depending on the
structure of the plan, the measure could cost up to $18 billion
over five years, according to one published estimate.
Unfortunately, there's little reason to believe that billions in
new federal subsidies will do anything to address the root problem
of rising college costs. In fact, federal spending may be
exacerbating the problem.
One of the reasons colleges and universities have been able to
charge more is that third-parties-like federal and state
taxpayers-are footing much of the bill. Many students are less
sensitive to price increases than they would be if they had a more
direct financial stake. This means that higher education
institutions have few reasons to keep costs low to attract
Ohio University economist Richard Vedder discusses this problem
in his book Going Broke By Degree: Why College Costs Too
Much. "Students receiving grants or subsidized loans are far
less sensitive to tuition increases than they would be if they were
paying their own way," Dr. Vedder argues. "Where entrepreneurs in a
free, unsubsidized market seek to cut costs and lower their prices
to lure new customers away from businesses that are raising
theirs, there is very little of that in higher education."
To begin to create greater competition in education and return
the federal government to its original role in higher education,
Congress could refocus existing tuition aid programs on those who
could not otherwise afford college. This would likely reduce
inflationary pressures on college tuition while addressing the
policy concern of expanding higher education access.
An increasing share of federal grant and loan subsidies are
being provided to students from non-economically disadvantaged
families. The College Board recently reported that "changes in
student aid policies have benefited those in the upper half of the
income distribution more than those in the lower half." A recent
Department of Education report found that 47 percent of
students from middle-income families accepted federal loans in
2000, compared to 31 percent in 1993.
These subsidies are inequitable. They are largely paid for by
taxpayers who don't have college degrees-only one in four adults
have bachelor's degrees. Workers are subsidizing students
from upper- and middle-income families, who can go on to expect far
higher lifetime earnings.
It may be too much to ask for fundamental reforms, at least
during Speaker Pelosi's 100 hour agenda. In the short-run,
conservatives would be wise to shift the policy discussion to the
relationship between federal subsidies and rising college costs.
Congress should investigate whether ever increasing subsidies for
higher education lead to higher college costs.
In addition, they could call on universities to be more
financially accountable to students, parents, and taxpayers.
Greater financial transparency would lead to greater understanding
about the problem of rising college costs and encourage
state-policymakers and school leaders to explore ways to make
higher education institutions more efficient.
American students should be wary of Congressional promises to
make higher education more affordable. If history is any
guide, federal spending and college prices will both keep
Dan Lips is an Education
Analyst at the Heritage Foundation www.Heritage.org.