On Wednesday, President Obama announced a plan to use his executive powers to allow students to reduce their student-loan debt payments and seek outstanding loan forgiveness at 20 instead of 25 years after graduation. The White House claims the scheme won’t carry additional costs to taxpayers, but voters are well past the point where they believe in Mr. Obama’s free lunches.
Taking aim at student debt helps shore up Mr. Obama’s crumbling youth support base, but the new plan does nothing to address the problem of the spiraling costs of higher education. The College Board’s latest Annual Survey of Colleges - also released this week - shows that average in-state tuition and fees at four-year public colleges increased 8.3 percent over the past year. In 10 years, tuition at public four-year universities has more than doubled. At the average private four-year institution, tuition, room and board, books, transportation and other expenses total $42,224 a year. That’s about equal to the declining median family income.
The new report reflects a long-term trend. Since 1985, college costs have risen more than 450 percent, which is about 4.5 times the rate of inflation. There is no justification for higher-education costs to have soared so dramatically. Faculty salaries have increased in most cases, but at only about a 10th of the rate of overall growth. Colleges and universities cite a variety of other factors, such as higher administrative costs and overhead, but these claims are unconvincing. The real reason schools charge more is because they can get away with it.
The federal student-loan system gives kids an easy way to gamble on their futures. Young people who have little experience with money accrue high levels of debt shelling out money to schools. A 2010 College Board report on student borrowing noted, “The problem is not that all students are borrowing too much. Rather it is that it is difficult to accurately predict future earnings, and many young people have a limited understanding of the impact of the obligations they are undertaking. Too many students are borrowing more than they are likely to be able to manage.” This problem is especially acute in the current soft job market.
Federal loans, Pell Grants, tax credits and other assistance constitute 68 percent of all undergraduate student aid. Total Pell Grant expenditures are three times what they were 10 years ago, and the number of students receiving them has grown from 3.9 million in the 2000-01 school year to 9.1 million today. But skyrocketing education costs have eaten up these considerably larger federal outlays and buy even less education per student than they did a decade ago.
The higher-education establishment has no incentive to control costs so long as government continues to make it easy for students to get into debt and then have it forgiven. Mr. Obama would have us believe this racket can continue at no cost to the taxpayer. You don’t need a college degree to see through that one.