Commentary
4:45 pm
Mon August 26, 2013

Getting Control of College Costs and Student Debt

     Young people graduating from high school face a conundrum: Going to college has gotten more and more expensive while the economic payoff from having a college degree has increased in value. College tuition and fees have continued to grow much faster than most other costs in the economy. At the same time, state legislatures have become increasingly reluctant to subsidize college operations. As a result, more and more of the burden of that growing cost of a college education has shifted to the families of college students, and, as they have been tapped out, onto the college students themselves, as they take on more and more student loans. 

          This represents a relatively dramatic change in public higher education policy in the United States. In the middle of the nineteenth century, federal and state governments recognized the increased importance of educating a much broader group of young Americans to apply rapidly developing science to a more and more industrialized economy built around rapid technological change. The result of that federal and state partnership was the establishment of public “land grant colleges.” By the early twentieth century almost every state had a public college system.

          Following the end of the Second World War, the GI Bill expanded federal support for public colleges and universities still further, offering demobilized soldiers broad support to attend college.  States expanded their college systems, many of them promising zero tuition the residents who graduated from high school. Not surprisingly, the fraction of young people attending college steadily rose. By the late twentieth century, increasing numbers of older adults, “non-traditional” students, also enrolled in college to enhance their employment and earning potentials.

          With college attendance rising faster than the economy was expanding, the public cost of expanding the college system and subsidizing all those new students rose. Something else happened, too. Middle-class students from suburbia, and no doubt their families too, were not satisfied with students living like medieval nuns and monks. They expected “modern” housing, attractive food, recreational opportunities, etc. Competition among colleges to attract students with the living amenities that middle class students took for granted drove college costs ever upward.

          The rising bill for this rapidly expanding college system had to be paid by someone. Ultimately, more and more of it settled on students themselves in the form of increasingly problematic debt burdens with which they have had to start their adult lives.

          Some saw that as a reasonable outcome. After all, these students would ultimately reap the benefits of that college education.  That is, there was a clear private benefit to the students, why should they not pay for it?

          So, by default, the solution to the rising cost of higher education offered to students and their families was government subsidized loans. At the federal and state level, a variety of college student loan programs were set up. Almost anyone could borrow to go to college.

          Not surprisingly, that pool of subsidized and government guaranteed loans, caught the attention of both colleges and lenders. Entrepreneurs began setting up for-profit schools whose students would qualify for those loans. Those college businesses advertised extensively, promising lots but delivering little more than dropouts with high debt loads. Established state and private colleges also promoted borrowing in the place of state subsidies and scholarships. With government loans readily available to help cover students’ costs, the colleges did not have to worry all that much about constantly hiking tuition.

          The steady deterioration of well-paid, unionized, blue-collar jobs in the last quarter of the twentieth century systematically eliminated that blue-collar path to a middle class life style. Employment opportunities for those with only a high school diploma grew increasingly bleak. More education was trumpeted as almost the only path to a decently-paying job.

          So there has been no shortage of young people (and older people who ran into economic dead ends) seriously contemplating going to college even if it meant taking on considerable debt. What was the alternative?  All the hype about the importance of and payoff from a college education and the marketing of the loans by colleges, lending institutions, and government agencies convinced many young people with little financial experience to take on enough debt to threaten rather than enhance their financial futures.    

          Where do we go from here? That was partially what President Obama’s speech last week at the University of Buffalo was all about. It is also what is pushing states like Oregon and Washington as well as the federal government to suggest replacing student loans with a contract that commits students to pay 1.5 to 3 percent of their income over 24 years after leaving college. Those payments would go back into college support programs for the next generation.

          Those who do very well after college would more than pay back the costs of their education. Those that have difficulty in the labor market or choose to work for low paying non-profits might pay much less than the cost of their education. It would be a progressive way of distributing the cost of a college education across the whole pool of previous students. That would partly reflect the stake the whole society has in a better educated population as well as reflect the fact that there is a private personal benefit to most people from their college education. Just as importantly, it would not horribly burden young people at the beginning of their adult lives.

          It is not a solution to the problem of financing a college education, but it is an improvement over the dead end into which the public higher education policies of the recent past have driven us.