To bastardize one of literature’s best opening lines: It is a truth universally acknowledged that a candidate for the Presidency will say and promise anything. Hillary Clinton desperately wants the job her husband once held. But she is mired in scandals from e-mails to Benghazi; she is deemed untrustworthy by a majority of Americans; an announced Socialist is nipping at her coattails and has, in fact, taken a lead among New Hampshire voters. So Mrs. Clinton seizes an issue dear to the hearts of millennials and generation Z’s (and even closer to that of their parents!) – the cost of higher education – and proposes a government answer to a problem caused by government.
Student debt, at $1.2 trillion, is a hurdle for students and the newly graduated. It bodes ill for our nation. In the past ten years, student loan debt has tripled. The cost of a college education, over the past thirty years, has risen at three times the rate of inflation. Since lenders price loans based on default and missed payments, interest rates on these loans are high. The ease with which government is willing to fund students is the principal cause of higher tuitions. While student loans have allowed many to attend college that otherwise could not have, those loans represent cash flow to colleges and universities.
Between 1975 and 2005, total spending by American higher educational institutions, stated in constant dollars, tripled to more than $325 billion per year. Despite a total U.S. population that has increased 15% since 2000 and a four-year college enrollment that has slightly exceeded population trends, tuitions increased 89% during those same fifteen years. Education, which represented 2.6% of GDP in 2000, had risen to 3.2% of GDP by 2010. Has that spending produced more qualified college graduates? Are we a more productive nation?
Mrs. Clinton’s staff estimates that her proposal will cost $350 billion over the next ten years, meaning it would consume less than one percent of government expenditures over that period. (Those numbers, however, are subject to upward revision. Another truth, as elemental as Jane Austen’s precept alluded to in the first sentence, is that politicians underestimate the cost of their proposals.) The largest part of the proposed budget (about $175 billion) would be offered to States in exchange for a no-loan promise from States to public universities. The idea being that loans to students at public universities would be converted to grants; so that students can graduate debt-free. There is a catch. The New York Times noted on Friday: “The Clinton proposal would greatly increase the federal government’s role in higher education.” Other uses of the balance would be to reduce interest rates and provide debt relief for students, graduates and drop-outs.
There is no free lunch. A study by the New York Federal Reserve found that every dollar in aid and subsidized student loans led colleges to increase tuition by $0.65. What Mrs. Clinton sells as debt relief to students and their parents are in fact additional funds for colleges and universities. What is billed as “free” has costs. Who will bear those costs? Mrs. Clinton answers: billionaires and millionaires. Perhaps? But keep in mind complexity in the tax code is a friend to the super-rich. Far more likely is that the program will cost more than its advocates suggest and its burden will fall primarily on the backs of the middle class. Remember, public spending, a touchstone of the Obama Administration, has been accompanied by a widening in income and wealth gaps. Worse, it will do nothing to rein-in ever-rising tuitions. In fact, as history tells us, it is more likely that college costs will continue to outpace inflation.
No one wants to deny aspirational and deserving students the opportunity for a college education. But, to put current costs in perspective, allow me to relate my own experiences. In the spring of 1961, I left college – the University of New Hampshire – after completing one year of credits over two years of study. During that time away, I worked, met the woman who would become my wife and did my six months of active military service. Changed, I returned to college in February 1963. Given my earlier performance, my family rightfully refused to pay my tuition, room and board. However, I was able to pay my way with a variety of jobs and graduated in February 1965, married and having completed three years of credits in two. I don’t believe that what I was able to do then would be possible today.
When I returned to UNH, a college credit (four were required for one liberal arts course) cost $11.50 for an in-State student. Today, that college credit costs $585.00 – an increase of 50 times. Working a forty-hour week, which I did performing such odd jobs as driving a school bus, writing a sports column for “Foster’s Daily Democrat,” and working in a sandwich shop, I made $50.00 a week at the minimum wage, or $900.00 over the eighteen weeks a semester lasted. That easily covered my four courses which cost $184.00, with money left over for room and board. Today, a minimum wage of $8.00 an hour would only generate $5,760 over the eighteen weeks, not enough to cover the four-course tuition expense of $9,360. ($15 per hour would not be enough to cover room and board, as well as tuition.) Colleges have priced their product too high. Were it not for federally guaranteed student loans, economic laws of supply-demand would have kept tuition costs down. Government interference corrupted the process.
Easy money has not been the only factor in steeply rising tuitions. Administrative budgets have ballooned. A 2011 article in “Washington Monthly” by Benjamin Ginsberg noted that between 1975 and 2005 the administrator/student ratio increased, from one administrator for every eighty-four students to one for every sixty-eight students. The professional staff (admission officers, tech specialists, development officers, etc.) ratio expanded from one for every fifty students to one for every twenty-one. Unions played a role. Their interest is in expanding their ranks, with little concern for the expense borne by parents and students. Amenities like student centers and dorm rooms are noticeably nicer than when I was a student. But, life-style pleasantries must be measured against common sense. The best book written on the subject of undue administrative expenses is Minding the Gap by Richard Soghoian, Headmaster at New York’s Columbia Grammar School. I recommend it.
Besides Dr. Soghoian’s practical guide, there have been alternative proposals – from freezing tuitions at state universities, to allowing students use federal aid on programs outside of traditional colleges, to permitting students deduct the cost of college from future earnings. MOOCs (massive open on-line courses) are one free-market response. Mrs. Clinton is right that student loans are a concern, but spending more federal money will not solve the problem. Students, not faculty or administrators, should be our primary concern.
The Opinions expressed above are mine alone, and do not represent those of the firm Monness, Crespi, Hardt & Co., Inc., or of any of its partners or employees.
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