Cheaper Student Loans Won't Curb Higher College Costs
As it happens, I agree with Kevin: College costs are rising outrageously. Why is a topic of hot dispute. Still, there's no question in my mind that college costs are rising much faster than necessary to provide undergraduates with a solid education. The most popular candidates for blame:
- Baumol's cost disease: We can make a car using robots, but it still takes one professor to provide one lecture. As the rest of the economy grows, these low-productivity sectors become relatively costly. This is undoubtedly part of the problem, but it doesn't explain phenomena such as the exploding costs of administration -- and as economics professor Richard Vedder pointed out to me in 2012, arguably the reason that we're still teaching classes in much the way that 19th-century professors did is that professors and administrators like it that way.
- Administrative empires: The explosion of administrative overhead is both inarguable and universally abhorred. (Except by administrators, who tend to fall silent when this comes up.) Faculty blame useless empire-building, and undoubtedly, this is a culprit, because who doesn't like to build empires? But I find this less convincing than most people. When you actually drill down into administration, it seems to fall into three categories: the professionalization of functions that faculty used to perform, such as admissions and disciplinary oversight; regulatory and legal overhead required by law, or required to keep the university from being sued; and the explosion of student services, demanded by students and/or the ideological and pedagogical commitments of the faculty. Swarthmore College professor Timothy Burke's post on this is a must-read.
- Chasing students: As the value of a college degree has risen, more kids are "shopping" for colleges using a wide range of must-haves, from academic prestige to sports teams to socializing opportunities. Colleges are chasing those customers by upgrading in all those lines: expanding high-visibility football programs, trying to move up the rankings, providing shiny new facilities that appeal to students. Buying everything from big-name professors to rock-climbing walls is expensive.
- The rising cost of technology: When I was in college, a personal computer was a relatively new, fancy piece of gear. Many professors didn't have them, much less blazing-fast Internet connections. Then, of course, there are the science, technology, engineering and mathematics fields, which require amazing amounts of pricey equipment. I do buy some of this argument, but science professors at Research I universities increasingly fund themselves with grants, so I don't think we can put it all down to supercolliders.
- People are more willing to pay: Since I graduated two decades ago, the premium on a college degree has gone up, and student loans have become more common. In financial terms, the future cash flows available from an investment have gone up; students can now monetize more of those future cash flows and turn them over to colleges. So colleges are now collecting a big portion of the college premium as tuition.
- State contributions to public colleges have gone down: This is true, especially in the budget crunch that hit when dramatically increasing health-care and pension costs collided with the Great Recession. But data from the College Board show that state and local appropriations have gone down by a couple of thousand dollars per student (adjusted for inflation). That's about 25 percent of the total, not the dramatic decline that you usually see claimed, and not nearly enough to account for the soaring levels of student debt we're seeing. People claiming enormous decreases look at state contributions as a percentage of revenue or spending. But as revenue and spending rise, these percentages will fall, even if state funding holds steady. And revenue and spending have risen -- a lot.
Broadly, all of these explanations have some validity; none of them explains everything. Taken together, however, I don't think they argue for making student loans cheaper. Doing so doesn't fix the cost problem; it just transfers that problem to the government (and if you think 2, 3, and 5 are big problems, it might make the cost issue worse).
What is the solution, then? Ask me an easy one. We're in the early stages of a correction, as people question the notion that getting any college degree is a guaranteed ticket to a good job -- and, therefore, start to "shop" a lot more aggressively on value than they used to. Whatever the solution is, I'm pretty sure that it's not the one we've been trying for decades: throwing more student loan money at the problem.
This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.
To contact the author on this story:
Megan McArdle at email@example.com
To contact the editor on this story:
James Gibney at firstname.lastname@example.org