College Need Not Be An Expensive Racket

September 26th, 2014
in Op Ed

by Seth Mason, ECOMINOES.com

To think, you used to be able to pay your way through school with a part-time job! My frequent ECOMINOES Radio guest Karl Denninger once told me that he paid for college by flipping dough at the local pizzeria between classes. But the days where you can pay-as-you-go are long gone. Adjusted for inflation, college is several times more expensive than it was when Karl was flipping pizzas in the late '70s:

Follow up:

College Need Not Be An Expensive Racket - cost of college chart

Thing is, higher education in this country need not be anywhere near as expensive as it is. The cost of college has been growing parabolically because schools know they can change whatever they please because the federal government will loan the money. Case in point: look at the chart of federally-backed student loans. Notice how it correlates with the chart of 90 day default rates. We're talking exponential growth of student indebtedness thanks to federal guarantees:

College Need Not Be An Expensive Racket - federal student loans chart
College Need Not Be An Expensive Racket - student loan delinquency chart

Truly tragic. My friend "Libertarian Girl" said it best:

If businesses (and yes, colleges are businesses) know their customers are always going to have the funds to pay for whatever product they sell (government funded student aid) there is no longer much of an incentive to keep prices low. That's the problem with student aid. It's time to demand real reform to student aid. Which means phasing it out.

Libertarian Girl is correct. Prices for college would fall precipitously if federal student aid were cut. I don't agree that federal aid should be eliminated entirely (as I've stated before, I strongly believe that there are no black-and-white issues), but I do know that reducing the amount of student aid would reduce demand for higher education, which would lower prices and reverse degree inflation. Neal McCluskey of the CATO Institute also argues for cutting student aid:

If the evidence shows us anything, it is that federal student aid is largely self-defeating when it comes to prices, and likely hurts low-income people more than anyone else. The price problem is easy to understand. Give everyone an extra dollar to buy a hot dog, and what will wiener vendors do? Raise their prices! Essentially the same thing has been happening in higher education for decades.

American higher education need not be so expensive. Reducing Uncle Sam's influence on the cost of schooling could make college degrees valuable again. - See more at: http://www.ecominoes.com/2013/08/college-need-not-be-expensive-racket.html#sthash.vR8bYTCg.dpuf









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