Truth Before Dishonor

I would rather be right than popular

Stop Government Funding of Post-Secondary Schools

Posted by John Hitchcock on 2009/02/11

In October of 2007, The New York Times said college costs have been increasing at twice the rate of inflation.

According to CollegeBoard’s 2007 report, Trends in College Pricing (pdf),

Over the past decade, published tuition and fees rose at an average rate of 2.9 percent per year after inflation at private four-year colleges, 4.4 percent at public four-year institutions, and 1.5 percent per year at public two-year colleges. The difference between average tuition and fees at private four-year and public four-year colleges increased by $3,726 (in 2007 dollars) and the difference between average tuition and fees at public four-year and public two-year colleges increased by $1,828 (in 2007 dollars).

While the New York Times article acknowledges a consistent rise of about double the rate of inflation, it also states a greater rise has occurred as governments have reduced funding. The article, referring to the report, said:

The changes in tuition at public institutions closely track changes in financing they receive from state governments and other public sources, the report found. When state and local support for public colleges declined over the last seven years, tuition and fees rose more quickly, and as state support has grown of late, the pace of increases fell, it said.

Note even with greater government funding of colleges, the costs to the student have still out-paced inflation.

The article discusses the fact the sticker price for a college education is generally not the actual to-student price. The actual to-student price is generally lower than the sticker price, yet even the actual price has been rising faster than the inflation rate.

But has this phenomenon been present only in the last ten years? According to John Hood, no.

Since 1980 the cost of going to college has risen twice as fast as the cost-of-living, climbing 57 per cent between 1981 and 1986. The Consumer Price Index went up 26 per cent during the same period. On average, a four-year college education now costs more than $25,000 — while at some elite schools like Harvard and Stanford, the bill comes to as much as $70,000. This explosion of college costs has even outpaced the much-decried increase of medical care costs, up 47 per cent between 1981 and 1986. During the same period, the cost of all commodities went up 12 per cent, while the average cost of all services rose 31 per cent. In short, the cause of burgeoning college expenses lies not in the general economy, but in higher education itself.

The article appears to have been written around 1987. Hood goes on to say that college cost increases have far outpaced income growth for average families. It gets even better. As costs are outstripping inflation and income growth, the school year is shrinking, providing less education time. And… and… colleges have been arbitrarily increasing the credit value of courses which, in turn, reduce the amount of education the students get for their increased cost.

To regular observers of government at work, this scenario is far from unique. In so many areas, ranging from telecommunications to agriculture to electric power, government “help” in the form of subsidies has allowed firms to raise prices above the market price, encouraged waste and inefficient “cross-subsidies” (overcharging one customer to subsidize another), and created an ever-increasing “need” for government expenditures. The higher education market operates in the same manner.

Though President Reagan’s foes continue to deny and obscure it, the Reagan administration has been a very generous subsidizer of higher education. Federal student aid appropriations increased from $5.1 billion to $9.0 billion between 1981 and 1986, a 77 per cent increase, while the Consumer Price Index rose 26 per cent. Total available student aid (including loan programs that leverage private funds with Federal dollars) shot up over 60 per cent during the same period, or more than twice the rate of inflation. Not to be outdone, state governments also have allowed the bucks to flow: state subsidies went from $20.9 billion to $30.7 billion between 1981 and 1986, an increase after inflation of about 20 per cent.

The final paragraph in Hood’s article says it all.

Only when government steps out of the education funding picture once and for all will the upward pressure on college costs subside, and the burden on students and their families lessen. This is but one more application of the axiom coined over 200 years ago by French businessmen in negotiations with their “helpful” government bureaucracy: “If you truly want to help us, leave us alone.”

If government quits feeding colleges subsidies, either directly or indirectly through student grants and loans, the colleges will have to rethink their pricing policies among a great deal more “government teet” policies. When that happens, prices will stabilize or fall to more reasonable levels. And we, the people can keep more of our money instead of handing it off to the government.

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