This commentary originally appeared in Forbes on July 19, 2015.
In a recent editorial, U.S. Senator, Lamar Alexander (R-TN), offers a sensible proposal designed to help make college more affordable and, with it, reduce student-loan debt. His scheme, to give universities “skin in the game” when it comes to student-loan debt, should be taken seriously, given his wealth of experience in higher education—as current chairman of the Senate’s education committee, past secretary of Department of Education, and past president of the University of Tennessee. Unfortunately, beneath Alexander’s reasonable proposal and sterling résumé lies a less-than-reasonable attachment to the very policies—federally subsidized student loans and Income-Based Repayment plans—that are in no small part responsible for the college-affordability crisis.
Or is there a crisis? The title of Alexander’s piece, “College is Too Expensive? That’s a Myth,” denies it. Affording college, says the senator, is “easier than most people think.” The real problem, he argues, is that “some politicians and pundits” assert that “students can’t afford a college education. That’s wrong.” Why? According to Alexander, “Pell grants, state aid, modest loans, and scholarships put a four-year public institution with the reach of most.” How?
Alexander correctly notes that community colleges are “free or nearly free for low-income students.” The national average for tuition at these schools is $3,300 a year, and federal Pell grants, which need not be repaid, “also average, $3,300.” Nationwide, four-year public universities, on average, charge tuition of $9,000. However, for these institutions, in addition to Pell grants, states granted “$11.2 billion in financial aid in 2013, 85 percent in the form of scholarships, according to the National Association of State Student Grant and Aid Programs.” Given the plethora of funding sources, he concludes, “The reality is that, for most students, a four-year public institution is also within financial reach.”
Others take issue with the senator’s cheerful scenario, suggesting that he is out of touch with the average American. They point to the fact that it is not, as Alexander alleges, only “some politicians and pundits” who “say students can’t afford a college education.” It is the American people themselves—and a lot of them, at that. A nationwide Pew study finds that 57 percent of prospective students believe a college degree no longer carries a value worth the cost. Seventy-five percent of respondents declared college simply unaffordable.
A 2012 study conducted by the educational lender Sallie Mae suggests that the public’s discontent is likely only to intensify, as vox populi translates into economic decision-making. The study provides evidence that outlooks and behaviors about how—and how much—to pay for college are shifting. The report finds that the amount paid for college had fallen in each of the prior two years. “American families reported taking more cost-saving measures and more families report making their college decisions based on the cost they can afford to pay.” The primary means by which this trend in cost-cutting is occurring is through enrolling in less-expensive colleges and universities and/or living in the parents’ home.
It is hard to fault students and their parents for their perception when one examines the harsh reality they face. In the past quarter-century, tuitions have risen 440 percent, roughly four times faster than general inflation over the same period. As a result, students and their parents have amassed historic debt in an effort to keep pace with tuition hyperinflation. Today, student-loan debt stands at nearly $1.3 trillion, which, for the first time in history, exceeds total national credit-card debt. How did we get to this point?
Nearly thirty years ago, then-U.S. Secretary of Education William Bennett foresaw this crisis when he offered what has since come to be called the “Bennett Hypothesis,” which asserts that increases in government aid to college students enable schools “blithely” to increase tuition without fear of repercussion. Bennett’s hypothesis has been debated ever since, but, just recently, the Federal Reserve has weighed in with a study that should remove any lingering doubts on the subject. Increasing federal student aid was found only to incentivize schools to hike tuitions further, thereby substantially nullifying any beneficial effects for students. Specifically, the study finds that every dollar of additional Pell Grants or subsidized student loans results in tuitions being raised between 55 cents and 65 cents.
This is where Sen. Alexander’s well-intentioned proposal falls down. All of his cited examples of programs that help make college “affordable” take the form of government subsidies—that is, of tax increases—on the larger society, which is already laboring under an $18 trillion national debt. Sen. Alexander’s proposals do little to get to this, the source of the problem, which is having government in the student loan business at all.
We see this when we examine Sen. Alexander’s attempt to show that not only public but also private universities “help make a degree affordable.” The private university he selects to make his case, Georgetown, could not be more unfortunate, for Georgetown has been shown to be gaming the student-loan system to allow it to raise tuitions at the taxpayers’ expense. Manipulating the Income-Based Repayment plan, Georgetown counsels its law students who go on to work for the government or a non-profit entity on how to avoid tens of thousands of dollars of student-loan debt. Who picks up the bill for these college elites? The taxpayers. The result? According a Washington Post report, “the federal government . . . [is] paying almost $160,000 to students at an elite law school.”
Shockingly, Sen. Alexander cites approvingly the income-based-repayment plan that makes possible Georgetown’s entirely legal but nonetheless galling gaming of current federal regulations.
To his credit, the senator includes a proposal to “require colleges to share in the risk of lending to students. This will ensure that they have some interest in encouraging students to borrow wisely, graduate on time, and be able to pay back what they owe.” This is a sound idea, but, given the dysfunction and perverse incentives that have been shown to lie at the heart of the subsidized-loans and income-based-repayment philosophy, it cannot be reasonably expected to substantially solve either tuition hyperinflation or its concomitant, crushing student-loan debt. Instead, we can expect to see tuitions and debt climb ever higher every time the federal government raises taxes to make college “more affordable.” We can then expect this to be followed by more government “solutions” to the problem that it created, solutions that will only inject into the larger society the metastasizing malignancy afflicting the federal government’s higher-education funding policies.
In short, if we continue with the same policies of increasing government support for higher education—through both subsidies for student tuition and income-based-repayment plans—we can expect only more of the same—higher tuitions, higher student-loan debt, higher taxes (“paid for” through debt) and more cries to “make college affordable.” Sen. Alexander is on the right track in chasing for a solution to the college-affordability crisis. But, by remaining in thralldom to the current big-government paradigm, he is only chasing his tail, which he—and we—will be condemned to continue to do until and unless we purge this failed paradigm and embrace more realistic solutions to education funding, among them, easing bankruptcy requirements for loan-burdened students as well as the senator’s proposal to make universities feel some of the pain of their students’ exorbitant student-loan debt.
So, Sen. Alexander, “college is too expensive” is, unfortunately, far from being a “myth.”
Instead, the myth is this: “We are from the federal government, and we’re here to help.”