Cause and Effect? Government Subsidies and College Tuition Cost Increases

In the spirit of the election season, President Obama has come forward with another government-er-taxpayer subsidy to assist young people with their student loan obligations.

Meanwhile, tuition increases for public college attendance continue their rapid pace of recent years.

Any connection between the two? Is one government subsidy the cause, either in whole or in part, of the other government subsidy?

As a matter of fact, yes. In my opinion, government itself is the single largest contributing factor to the high costs of public colleges and universities.

Thus, what the president is now doing for today's indebted students won't address the real cost problem, even though it may help him get more votes from young people in the 2012 election.

Neither will it help the economy to rebound and thereby make it easier for young graduates to find meaningful employment. Nor will it help raise the quality of the educational experience at our public colleges and universities.

So what is the president really up to, other than bolstering his re-election odds? Not much.

In fact, he's ducking the real cost and quality issues harming our educational system. Both inputs (costs) and outputs (quality of education) are going the wrong way.

It's very much a chicken and egg issue. Government heavily and directly subsidizes the colleges and also provides loans and grants to students attending these institutions.

Thus, the taxpayer gives colleges money and then turns around and gives money to students so they can afford to attend those colleges. It essentially enables colleges to inflate their costs and enables students not to be concerned about those inflated costs when choosing which public college to attend.

That's a big reason why attending public colleges today is becoming less of a bargain compared to private colleges than it used to be. Tuition Continues to Climb at Public Colleges has this to say about tuition hikes:

"Tuition and fees at the nation's four-year colleges climbed sharply again this year, though rising federal grants and loans took some of the sting out of the increases.

At four-year public colleges, in-state tuition and fees for the school year beginning this fall rose by an average of 8.3% from the previous year, to $8,244, amid declining support from state legislatures, according to annual reports from the College Board, a nonprofit that conducts collegiate research. The total cost including room and board rose 6% to $17,131,

Tuition and Fees

Average published tuition and fees for undergraduates.

Sector	2011-12 costs	2010-11 costs	$ Change	% Change
Public Two-Year In-State	$2,963	$2,727	$236	8.7%
Public Four-Year In-State	$8,244	$7,613	$631	8.3%
Public Four-Year Out-of-State	$20,770	$19,648	$1,122	5.7%
Private Nonprofit Four-Year	$28,500	$27,265	$1,235	4.5%
For-Profit	$14,487	$14,040	$447	3.2%

Source: The College Board

At private colleges, tuition and fees rose by an average of 4.5% to $28,500, as total costs including room and board jumped 4.4% to $38,589.

The markedly quicker rate of increase at public schools continues a decade-long trend that has narrowed the price gap between the two. This year, the average tuition-and-fees price of a four-year public college is 29% of the private-college price, compared with 22% a decade ago.

"While the importance of a college degree has never been greater, its rapidly rising price is an overwhelming obstacle to many students and families," said Gaston Caperton, College Board president.

Yet the actual price that students are paying is often much lower than the sticker price, thanks to big jumps in federal Pell Grants and veterans benefits, combined with the 2009 implementation of the American Opportunity Tax Credit. While the published rates of public-college tuition and fees rose by a total of about $1,800 over the past five years, the actual increase paid by students after accounting for grants and federal tax benefits was only $170, according to the College Board.

In the 2009-10 school year, average grant aid jumped 20% from the previous year for the average full-time undergraduate. During the three years ended last spring, grant aid and federal loans per student each separately jumped by about 30% in inflation-adjusted dollars, the Board said."

In another article titled President to Ease Student-Loan Burden for Low-Income Graduates, Melody Barnes, Mr. Obama's spokesperson, makes it clear that the president is reacting to pressure from the Occupy Wall Street movement:

"The lower caps of the new program were scheduled to go into effect for new borrowers in 2014, but, Ms. Barnes said, “because we know the frustration of crushing loan burdens, we have to act now.”

Ms. Barnes noted that over the last month, more than 30,000 people had signed a petition on the We the People platform at whitehouse.gov, asking for relief on student debt.

“It’s a message heard loud and clear,” she said.

The high cost of college and the growing debt burden of student loans have become increasingly potent political issues in recent years, high on the agenda of Occupy Wall Street and related protests across the country.

And the annual College Board reports on college prices and student aid, to be released Wednesday, make it clear that with the weak economy, the college affordability problem is getting worse."

Later the article says this:

"This is the fifth consecutive year in which the public universities that serve most students raised their tuition at a faster rate than the far more expensive private universities. And over the last three decades, the report found, the average tuition at four-year state universities almost quadrupled."

And then this:

"Only about a third of full-time students pay for college without some grant aid, whether in the form of a federal Pell grant, a state scholarship or aid from the college itself.

Net tuition —the amount a student actually pays, after grants and tax savings— is often sharply lower than the published price. In fact, the College Board report said, net tuition at community colleges was low enough that, when grants and tax savings are taken into account, the average student can pay nothing out of pocket and have $810 left over for books and living expenses.

This year, the report said, full-time students at state universities receive an average of about $5,750 in grants and tax benefits, while students at private nonprofit colleges get about $15,530 and those at community colleges about $3,770."

This seems like an interconnected scheme to keep college costs rising while hitting the taxpayers with added costs. By so doing, colleges can continue to incur rising costs and students can deflect these costs by receiving grants, loans and such.

Someday, however, somebody has to pay up, and I guess that's the taxpayer, as always.

Thanks. Bob.