Information is cheap, meaning is expensive. George Dyson

An American Dilemma

For all the media sensationalism there isn’t so much a crisis in higher education as a solvable dilemma.

The United States is the only nation where heated discussions about college expenses and student loan debts surpass public attention to the scoreboards of World Cup matches. One reason is that Americans are provincial and look to their colleges and universities for spectator sports – such as the 25 million viewers for the nationally televised college football (not soccer) championship game in January. A more sobering, substantive explanation is that American higher education balances a peculiar combination of goals: we want universal access and affordability yet still expect students and their families to cobble together a “financial aid package” to pay a substantial price of college costs. This combination became a collision that has created an American Dilemma of paying for college.

How did the United States get into this mess? First, all American colleges are dependent on student tuition payments to meet annual operating expenses. Second, federal support for college student aid emerged only in 1945 and did not blossom until the 1972 reauthorization of the Higher Education Act and creation of the Pell Grants program. Third, although many states followed California in providing tuition subsidies for students, these policies have fluctuated and waned. Fourth, since 2000, state governments have shifted an increasing percentage and amount of tuition costs toward students. Fifth, since 1978 the United States Congress has favored student loans which must be repaid with interest – a shift from student grants which required no repayment. This was good for banks but expensive for students.

Media magnification of the dilemma

Newspaper headlines along with the recent award-winning documentary film, The Ivory Tower, sound the alarm that this is a crisis. Even the President of the United States has devoted press conferences and part of his State of the Union address to the national problem of college expenses. Today this means public outrage that a college graduate typically has $30,000 in student loan debts.

That is not good news. However, media sensationalism magnifies the problem without helping to solve it. College is expensive – annual tuition sometimes reaches $50,000. Left out is that even tuition charges of a Harvard or a Stanford are no more expensive than other year-round custodial institutions – such as paying for a nursing home or maintaining an inmate in a state penitentiary. Besides, neither nursing homes nor prisons provide their constituents with state-of-the art libraries, laboratories, advisors, or professors – whereas colleges and universities do so in a good, big way.

The answer is forgivable loans

What about the $30,000 student loan debt? A student who graduates after four years in college probably will have had total expenses of $100,000 to $200,000. This means that the student has been able to meet $70,000 to $170,000 – or, about 70% to 85% of the bill. The $30,000 is a relatively small percentage of that. Also, the loan debt amount is what a young American would pay for a good but not luxurious new automobile.Absorbing a college debt of $30,000 would be neither unreasonable nor unbearable if a college graduate landed an entry level professional full-time job. But debt repayment is out of reach if one is unemployed or underemployed.

So, the problem is not exclusively college debt, but rather, its occurrence with a national economy that is sluggish in providing reasonable employment suitable for college graduates. That does not solve the college debt problem, but does help to quarantine it. A partial policy solution might be for the federal government to convert student debt into forgivable loans. If a student is working in a service field such as teaching, social work, nursing, or as staff for a nonprofit organization. The federal government could forgive 20% of the $30,000 loan per year. After five years of service work, a student would be debt free while still having received a salary and gained professional work experience.

Is college too expensive?

Now, having solved the student debt problem, let’s return to a larger, related source of debate: are American colleges too expensive? The first quandary with this loaded question is that most public discussions – ranging from members of congress to governors and even to the president of the United States – frequently use “cost” and “price” of college as synonyms. They are not. “Costs” represent all the goods and services a college provides. “Price” refers to what the student pays. Reducing one is not at all the same as or necessary for reducing the other. Newspapers revel in reporting that e.g., Florida State University increased its tuition by 20%. However, this glosses over the fact that the high percentage increase may represent a nominal dollar increase – let us say, from $10,000 to $12,000. Meanwhile, Amherst College increases its tuition from $48,000 to $50,000. It’s the same dollar increase as the state university – but is not newsworthy because it is “only” a 4% increase. The American story is complicated by a reliance on “packaging” – an idiosyncratic mix with of merit scholarships and need-based scholarships provided by the college itself, combined with federal loans, and perhaps a federal Pell Grant.

The costs and price of college have been rising steadily. The price, however, often is muted by increases in institutional financial aid to students. It is unlikely that colleges and universities can lower their costs, as the competitive drive for prestige fuses with attempts to meet consumer demands of students who want comfortable dormitories, a spacious campus, along with a recreational center. All this leads to investment more expensive services and facilities. Nor can the university administration cut back on admissions and recruitment program expenses because, after all, the college needs to enroll students. And, to return to college sports mentioned at the start, only about 20 of 300 big-time college sports programs are self-supporting despite ticket sales and television for spectators. Most rely on cross-subsidies from student tuition and fees. What president is going to cut college sports or these other student activities and services? So, the unfortunate default is that most American colleges will continue to raise tuition charges – and then shift an increasing amount of those dollars from educational programs to subsidize non-educational offerings.

Read more in this debate: Richard Vedder, Philip Trostel, Keith Parsons.

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