Saturday, April 28, 2012

College Affordability and the Government's Troubling Role

We all know college costs are high and rising at annual rates substantially greater than overall inflation. This is nothing new and has been going on for a long time.

Many of us also know that government subsidies, including student loans, are a major contributor to the ever escalating costs of college attendance.

And it's another well known fact that student loans are a huge and growing problem for those attending college and their families.

All that said, commentator John Stossel in The College Cost Conundrum says that it's even worse than that.

In that regard, please consider the following:

"President Obama said in his State of the Union Address that he is putting colleges on notice to lower costs. A few days later, he spoke to students at the University of Michigan, with a promise of more federal aid. Politicians claim they can make college affordable. No They Can't!
In the last 30 years, inflation is up 160%, but tuition costs are up 750%.
It's because colleges have no incentive to cut prices when students can get money from government. Federal aid, adjusted for inflation, increased from 32 billion in 1987, to 169 billion in 2010. . . .
Government creates perverse incentives. Colleges compete on prestige and luxury amenities, not their price tag. Administrators don't worry about high tuition costs because their customers have government subsidies."
Discussion and Analysis
"Introducing Bennett Hypothesis 2.0" on page 22 offers a startling conclusion about the vicious cycle effects of government financial aid for college attendance (to access the entire article, just click on '169 billion' above):
"{T}here will never be enough financial aid because there is no limit to tuition.
A depressing realization among those who recognize the dangers of the Bennett Hypothesis is the prediction that many efforts to improve college affordability by increasing financial aid will be rendered ineffective. A terrifying realization is that there is no end to the process. For decades we have been caught in the vicious cycle of Bennett Hypothesis 2.0:
1. In an effort to improve college affordability, the government increases financial aid funding.
2. The financial aid allows colleges to raise tuition so as to gain more revenue to pursue excellence.
3. The higher tuition reduces affordability, leading to calls for more financial aid, sending us back to step 1 and starting the process all over again.
The predicted outcome of this cycle is higher aid spending, without an improvement in affordability."
Summing Up
Government officials may mean well with respect to making college attendance more affordable, but that's not what ends up happening.
Just the opposite occurs, in fact. Government financial aid makes the affordability problem worse over time.
The law of unintended consequences once again applies and makes the point convincingly that the road to perdition is often paved with good intentions.
To wit, in the case of attending college and its escalating costs, the government's "help" seems to be extremely harmful to the general welfare of students, their families and taxpayers, too.
More student loans outstanding backed by the government isn't the answer. It's a big part of the problem.
Good intentions alone don't produce good results.
In the case of government and college affordability, that's particularly true.
Buyer and borrower, beware!
Thanks. Bob.