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Posts Tagged ‘Tuition’

Student Debt Strangling Younger Americans

Posted by Steve Markowitz on September 21, 2014

Reason.com published some incredible and scary figures relating to student debt including:

  • In-state tuition has increased in some states from about $3k annually in 1991 to over $10k last year.
  • Private college tuition in 1983 cost about $18.5K, but by 2013 climbed to about $41K annually.
  • Between 2008 and 2013 the average tuition/fees at public four-year colleges/universities increased by 19% above the rate of inflation during that five-year period. During the same period, private colleges/universities increased by 14%, which was larger than the 9% increase for the previous five years.

The trend is unsustainable and has led to significant damage to younger Americans.  For example, between 2004 and 2013 there is been a 400% increase in student loan debts to $1 trillion. During this same period the New York Times reports that there has been an 8% decrease in home ownership among 25-34-year-olds.

The $1 trillion educational debt saddled on younger Americans will be a drain on overall economic growth for years to come. This demographic is generally a significant consumer, but will need to pay off debt rather than spend on other goods and services.

Debt BombThe educational debt bomb is a direct result of governmental intervention in higher education. The government subsidized and guaranteed student loans irrespective of ability or willingness of individuals to repay them. In addition, the easy loan policies removed incentive to students to study fields that would result in better paying jobs.

As for the educational industry, it has reaped significant benefit from governmental largess. In addition, this industry’s access to an ever increasing student base that was created by the governmental loan programs allowed the industry to become bloated and inefficient and has been a direct cause of the cost of education increasing more significantly than the inflation rate.

Irrespective of past policy failures, President Obama recommends doubling down on these programs. The President’s proposals include capping student debt repayment at 10% of their monthly income, yet another disincentive to earn more. Not only will this further increase borrowing by this demographic and result in still higher education costs, but it will also cost US taxpayers approximately $11 billion according to Politico. What a perfect calamity. When will they ever learn?

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Illegal Immigrants’ Offspring in Florida Granted Subsidized College Tuition

Posted by Steve Markowitz on September 9, 2012

In another sign of judicial activism, Federal Judge K. Michael Moore invoked the equal protection clause of the US Constitution ruling that the State of Florida could not charge out-of-state tuition to children of illegal aliens.  Finding that such children are US citizens, the Judge ruled that they must be charged the same rate as offspring of legal citizens who are residence of Florida.  Judge Moore’s ruling exemplifies why governments must exit the business of assisting some residents with benefits at the expense of others.

While the idea of subsidized college education has merit given potential benefits of society, the unintended consequences offset the potential benefits.  Because of the government’s intervention in the college education business, the cost of tuition has risen faster than almost any other service in the Country.  That is not by coincidence.  With the government’s subsidies the college education businesses had less of a need to become more efficient and control costs.  As their costs have skyrocketed, the increases have been passed on to students who accumulate more debt to pay the outrageous bills.  Judge Moore’s will be another addition to the cost increases other citizens will end up paying.

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College Tuition Continues to Climb

Posted by Steve Markowitz on October 30, 2011

The Wall Street Journal published the most recent statistics on the cost of a college education and it’s not pretty.  Four-year college tuition continues rising at rates that far exceed inflation.

According to the Journal, the cost of in-state tuition for state-supported schools in the past year has increased by over 8%.  Along with room and board it now exceeds $17,000 annually.  While private colleges fared better, their tuition fees did rise by 4.5%, an amount that also exceeds the inflation rate.  When added to room and board the total cost now averages $38,000 per year.

State-supported college costs have increased more than private institutions because of the poor financial condition of many states.  As states are forced to cover ever increasing costs that include public workers’ pensions and other benefits, an especially difficult task during the ongoing economic downturn, they are forced to cut contributions to state-supported colleges.  This is another example of governments moving ever larger slices of the financial pie from younger Americans to the Baby Boomers.

In addition to the difficult economy, there is an even more insidious reason behind the out-of-control increases in college cost; governmental intervention.  Through governmental programs that have significantly grown over the years including Pell Grants, veterans benefits, the 2009 implementation of the American Opportunity Tax Credit, the government has made it easier for students to pay their college bills.  While these programs are well intentioned, they have allowed the college industry to be less efficient and that has resulted in their costs increasing significantly more than the rate of inflation.  In fact, the cost of a college education is one of the few services in the United States to increase faster than the cost of healthcare.  However, unlike healthcare where new technologies and services have been added, the services supplied in a college education has remained relatively constant.

The government’s meddling in higher education has turned out like other interventions.  The results look similar to what occurred in the housing industry in the past decade.  First, through easy money and subsidies, the government helped pump up housing prices.  This unnatural intervention led to a bubble and oversupply that ultimately popped bringing the economy to its knees.  In the education industry, the government’s interventions led to easy tuition money that then led to students willing to overpay for the services.  In addition, an increasing number of students received degrees of dubious value and many now have debt for which they cannot repay due to a lack of jobs.

Unfortunately, instead of learning from the failures of past interventions, the government continues doubling down on bad bets with still further interventions to correct previous mistakes.  This will only lead to other market dislocations and still further corrective actions.  These Progressives will never learn and the government industry will continue pursuing strategies that further their own well-being.

Posted in Education, Governmental Intervention | Tagged: , , , , , | Leave a Comment »