Student loan subsidies blamed for nearly all college tuition increases

America Thinker ^ | 12/22/2015 | Thomas Lifson

[SeekAndFind]

A new study from the prestigious and scrupulously non-political National Bureau of Economic Research (which designates the beginning and end of recessions) blames student loan subsidies for nearly all of the tuition increases that have caused college education to become so expensive as to financially cripple families and indebted students.  Professor Alex Tabarrock explains the highly technical paper at the Foundation for Economic Education:

Grey Gordon and Aaron Hedlund create a sophisticated model of the college market and find that a large fraction of the increase in tuition can be explained by increases in subsidies. (snip)

Remarkably, so much of the subsidy is translated into higher tuition that enrollment doesn’t increase! What does happen is that students take on more debt, which many of them can’t pay. (snip)

…the Econ 101 insight that subsidies increase prices (even net for those who are not fully subsidized) holds true.

I wonder where else (& here) we could apply this insight?

The higher education industry has become rich and fat off its ability to raise prices at a rate roughly triple inflation over the last five decades. Because intelligence tests are forbidden to be used by employers (as supposedly discriminatory), the only way to sort through job applicants by intelligence is through the rough proxy of a college degree. As gatekeepers to careers, colleges have been able to exploit the vulnerability of students (and parents) seeking to be hired by employers offering good prospects.

Student loan debt, incurred to pay for skyrocketing college tuition, is a ticking time bomb in the American economy, roughly the same size as mortgage and credit card debt.

[rlmorel]

Gee. Let’s give taxpayer money to everyone, everywhere to go to college, whether they are qualified or not.

That would be quite a government teat for higher education to suck on.

I certainly don’t recall any staff reductions at any college, anywhere, anytime, though I am sure it has happened.

As costs go up...they just increase the amounts of money they get from people who are willing to pay, and get more taxpayer money for people who can’t or won’t pay.

[Oberon]

Money supply increased, the price went up. Basic econ 101.

In effect, college didn't really become more expensive... rather, your dollars got smaller. :D

[Responsibility2nd]

Idiots never learn.

We had a mortgage loan crisis here in America because the gubmint made it easy to borrow cheap money against your home with a “We’ll worry about it someday” attitude on repayment.

They are doing the same thing with student loans. Watch and see if the liberals don’t press for a total forgiveness of all student debts making college expenses even higher and creating another recession like we had in ‘08.

[isthisnickcool]

The amount of this debt on he street is about three trillion.

[kingu]

They are doing the same thing with student loans. Watch and see if the liberals don’t press for a total forgiveness of all student debts making college expenses even higher and creating another recession like we had in ‘08.

I'm all for student debt forgiveness - it's called the bankruptcy code, and it needs to once again include both medical expenses and college loans. Federally backed loans need to end.

[WENDLE]

1 million APPLE jobs went to China because we don’t have vocational training any more. We expect everyone to have two degrees on borrowed money and protest .

[A CA Guy]

"The amount of this debt on he street is about three trillion."

Is that street drugs, welfare and student loans combined?

[BuffaloJack]

Captain Obvious there. Of course the student loans are responsible. As long as the schools know you can borrow, they will charge as much as they can.

[Responsibility2nd]

Should parents - with their nice middle class income and their nice $250K home - be able to file bankruptcy simply to weasel out of some $80k in student loans?

Hell No.

Should students with $80K in debt and a liberal arts degree with Ebonics or something similarly stupid be able to file bankruptcy because they can’t find a job except at McDonalds?

Again, Hell No.

Perhaps you can tell me under what circumstances it is OK to weasel out of student loan debt through bankruptcy?

[Opinionated Blowhard]

I think the greed of the academic establishment has something to do with it too. And what a great irony that is. No one forced universities to increase tuition in lock step with government aid. They did it because they could and because the faux Communists that infest the university administration and professorial staff are, at heart, greedy and selfish. They want six figure incomes to teach one class a year.

[Raycpa]

Any student of basic economics would not need a study to assign the cause. Only liberal idiots who seem to be unable to grasp basic economic theories need fancy studies, and even then they’ll ignore them or attack them because they do not support their world view.

[Excuse_My_Bellicosity]

It’s sad to see education become a racket but that’s exactly what’s happened. Embry-Riddle (at least where I’ve experienced it) is total diploma mill. There are tons of military people getting worthless “pay your fee and get a B” college degrees. It’s disgusting that that school calls itself a university and it’s disgusting that taxpayer money is pouring into that place.

I went for one semester because the military tuition assistance paid my way and I couldn’t in good conscience continue. I dropped that grad program and went on to get a much better master’s in mechanical engineering at a different school. Best thing I ever did.

[Retain Mike]

I will ad this article to the Hillsdale College referenced below. Here is the letter I wrote in response to him.

From: Richard Vedder [mailto:richard.vedder1@gmail.com] Sent: Wednesday, June 27, 2012 6:56 PM To: Retain Mike Subject: Re: Federal Student Aid and the Law of Unintended Consequences Retain Mike, There is a new academic study that confirms that tax based aid leads to reduced institutional support. Thanks for your email. Rich Vedder On Jun 27, 2012, at 2:44 PM, "Nolan Nelson" wrote:

I read your article about federal financial aid with some interest since I am a retired chief financial officer for a small private college. I would add to what has occurred a less charitable interpretation than the Law Unintended Consequences. I need the following story to illustrate my point.

As part of applying for participation in federal programs each year colleges prepare sets of student budgets. These then appear in the award letters. The Department of Education when analyzing the student and family data provide an expected family contribution. The difference between the budget and expected family contribution the college then attempts to fill up with awards. In most cases, at least for privates, there remains an unmet need. However, students still successfully complete the school year. I analyzed this figure annually to hold financial aid people accountable for adopting standard for awards which took into account reasonable measures (they didn’t think so) of this unmet need for the next year.

Now comes the American Opportunity Credit and Lifetime Learning Credit that are supposedly of direct benefit to the student and their parents. I plugged those into the figures for unmet need to require greater average contributions and lesser awards by the college. I made sure the student and their parents were conduits for and not recipients of the majority of these tax benefits.

This story illustrates how financial people have behaved ever since the feds started throwing money at colleges. Similar information has always been part of the pervasive public knowledge available for Pell, SEOG, GSL, etc. There was always any number of professionals who were available to testify concerning the inevitable consequences of these programs.

Such individuals were ignored and/or never given a forum. The programs were just too attractive to assist in re-election. I would propose the Law of Premeditated Ignorance accounts for this phenomenon much more accurately than the Law of Unintended Consequences that is usually proposed to evade responsibility for obviously stupid actions.

Federal Student Aid and the Law of Unintended Consequences http://www.capoliticalreview.com/top-stories/federal-student-aid-and-the-law-of-unintended-consequences/

[EQAndyBuzz]

Womyn’s and Minorities studies programs, all supporting staff and infrastructure. Then add in all the grants and subsidies for those programs and the default on all the loans.

That’s what is killing higher education today. Nothing more, nothing less.

[kingu]

Well, your position is the current system, none of those loans can be weaseled out of.

How’s it working out for you? For me, seems like the grand financial experiment has worked out poorly.

[uncbob]

I said this back when they first were instituted

[Responsibility2nd]

I simply asked you a simple question. You chose to ignore and not answer it. Then you rephrased the question.

The solution to our student loan debt problem is to get the FEDGOV outta the way. To allow bankruptcy (as you favor) is ridiculous.

[csivils]

They should cap tuition aid to some multiple of the average first year out income for that degree at that institution. That would solve a number of problems:

* Defund useless degrees
* Force universities to cough up the truth about the financial deal the students are getting
* Encourage students towards more sensibly priced universities

[Excuse_My_Bellicosity]

Not being able to get a loan or credit card for 7 years in return for being able to walk away from six-figure debt. Hey, sign me up! (Being sarcastic, it’s a horrible idea.)