I’ve continued thinking about the president’s plan for making college more affordable and, honestly, on reflection it’s not as loopy as it sounded at first. I think it makes all of the sense in the world if you buy the president’s assumptions about higher education. I don’t which explains my initial, puzzled reaction.
For example, I don’t think that college education for everyone is possible and, consequently, I can’t see it as a desireable goal. 50% is about the limit for any country and we’re approaching that now. The main effect of college education beyond about 30% of the people is mostly positional rather than educational. Is that really something we should be pursuing and financing?
I also don’t think that the president believes that supply and demand play any role in pricing at all. If you believe that supply and demand play some role in pricing, you recognize that if you hold the supply constant and pour more money into something, its cost will rise. At some level the people who point to the tremendous increase in the role of the federal government in financing higher education as being a basic reason for the rising cost of education are right. We can’t make it cheaper by spending more on it.
Consider the primary mechanism of the president’s plan, the rating system and tying federal loan money to the rating system. IMO the bad secondary effects of such a system outweigh the benign intended effects. Pell grant money just isn’t that important for elite schools. For most of them fewer than 30% of their students qualify and the general rule is that the more elite the school the lower the percentage of Pell grant recipients. So, for example, only about 12% of students that go to Princeton, the #1 ranked school, are recipients. That represents an extremely small proportion of revenues.
IMO the main effect of the plan will be to aggravate the partitioning of the higher educational system into elite schools whose students go on to lucrative careers and non-elite schools whose students go on to jobs that used to be done by people without college degrees but for which college degrees are now required. Those non-elite students will be both dissatisfied because of their unrealizeable expectations and burdened with educational debt.
Also, if you believe that our signal economic problem is excessive household debt, the “balance sheet recession” hypothesis, I don’t see how you can be happy about what’s been happening over the last decade or so. Over the period of just the last eight years the volume of educational debt has increased five-fold. Now look at total household debt. As you can see, we started to deleverage and have plateaued at what is obviously too high a level of debt. The only plausible explanation for that is educational debt.
It’s understandable that banks would turn to financing educational debt. It’s unsecured but it’s not dischargeable in bankruptcy. For a risk-averse institution that’s practically perfect. No pesky assets to seize or dispose of, possibly at a loss, and the unlucky defaulter can’t escape.
The primary problem is this:
Purdue Annual Tuition for State Resident (1989): $1,916
If tuition had matched CPI increase through 2011: $3,487
Purdue Annual Tuition for State Resident (2011): $9,478
In 1989, it would have been hard to be concerned about whether the course of study would payoff. The average price of a new car then was $14,371 (current dollars). I remember former high school classmates that did not go to college buying nice cars, while the college students borrowed for education.
I’m not sure student loans are responsible for all of that increase, particularly since student loans existed in 1989. Now that the feds have taken over the student loan program, the possibility of using that power to control costs exists.
The primary political problem is that reducing access to student loans or increasing the cost of student loans might be a political non-starter.