Conservative Logic

An economic guide to politics, designed for post-Baby Boomers

Spiraling Costs of Higher Education

Posted by A Hamilton on March 30, 2008

The cost of higher education is of primary concern to Generations XYZ. Almost everyone in this group is either about to pay for or in the process of paying for their education or the education of their children.

It seems like this is one area where the Democrats have the Republicans beat as far as proposing policies that benefit Generations XYZ. Both Clinton ad Obama are both proposing increases in availability of federal student loans. Good for students, right?

A recent study from the Center for College Affordability and Productivity, available here, suggests the truth may be a little more complicated. The study questions whether increased government spending on higher education actually has the effect of lowering tuition.

If you think about it, it makes sense. Making student loans easier to obtain drives up the amount of dollars chasing the same fixed amount of education available. If demand rises, price will rise, ceteris paribus. College tuition goes up. You end up borrow more and paying more for the same education.

Of course, this is exactly what has happened. The cost of higher education is out of control:

“How would your lifestyle change if a gallon of gas cost $9.15? Or if the price of a family staple such as milk was $15? That’s how much those products would cost if their prices had increased at the same rate college tuition has since 1980.”

Of course, the Democrats would like to throw more money at the problem. One of their most powerful constituencies is education professionals. (Can you even imagine the Democratic griping we’d hear about ExxonMobil if gas was at $9.15 a gallon? Funny the Democrats never complain about price gauging by universities, even as the size of their endowments skyrocket.) It seems to me that that strategy has utterly failed.

The supply side of the equation clearly needs to be addressed. Simply, we need more competition in higher education. Higher education today is notoriously anti-competitive. Bringing a bit of the free market to higher ed is a prospect that is unappealing to many academics, with their cushy tenured jobs and ivory towers. But the American educational system is only going to come under greater strain as the huge demographic wave of Gen Y/Z hits. In the long run, we may need to build new universities and make higher education more commoditized in order to support the upcoming demographic wave. In the short term, we can at least try to drive some efficiency into the system.

As far as government policy vis a vis individual students, throwing bigger loans at them is not the answer. The bigger the loan, the more you’re on the hook to pay back later. Instead, why not make it easier for students to pay back loans by eliminating the cap on student loan interest deductibility? This strategy doesn’t create a tuition windfall for universities, but does make managing those big loans a bit easier on Gen XYZers.

Another strategy could involve transitioning American secondary education to a more European-style model with better articulated career tracking throughhigh school. I’m not sure how I completely feel about this option. It would reduce demand for traditional liberal arts education, and generally make our educational system more efficient at training students for their post-graduate careers. On the other hand, it would represent a significant departure from traditional American values in higher education.


One Response to “Spiraling Costs of Higher Education”

  1. Joel_Cairo said

    Interesting post, Mr. Hamilton. A couple of responses:

    1. I don’t think it’s quite fair to say Dems don’t complain about this “make college affordable” is a red-meat applause-line staple common to every stump-speech in suburban districts.

    2. Another huge problem is that we have no reliable metric for measuring quality of higher ed, so prices just climb higher and higher, signifying nothing. See this post: (I’d also recommend the article he’s responding to, linked in that first paragraph)

    3. That last paragraph of yours, about the Euro system, leaves me a little iffy. It seems to me that one of the best things about the characteristically generalist American system is the flexibility it affords; most people I know have held about 5 different jobs, each tangentially related to their field of study. If we go to the Euro job-training model, I feel like we’d have much more rigidity in the workforce, much less leeway to retool your career, and soon lots of etatist european problems: unions clinging to their positions, because its the only job their members can hold, lots of structural unemployment s college grads with degrees in glutted fields wait in line for someone to retire. Soon the state would have to be assigning people their majors just to keep things running, and if people can’t chose their degrees, can 100% taxpayer funded higher ed be far off. I don’t like those implications from where I sit, I can only imagine how bad they look from your p.o.v.

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