Commentary

Democrats’ Middle-Class Payoff

A version of this article ran in Human Events, January 11, 2007.
As you’re reading this, the U.S. House of Representatives is probably in the midst of its much-hyped “First 100 Hours,” during which the new Democratic majority has promised to pass several pieces of legislation in a hurry. Many of the issues up for consideration may be driven by urgent national needs, but at least one – cutting interest rates on federally subsidized student loans – is far from it. If anything, the critical need in American higher education is to cut student aid, not expand it.

Now, don’t get me wrong. Making college more affordable is a laudable goal, especially in light of the stratospheric heights to which tuition has soared over the last few decades. But making student loans cheaper will only exacerbate the problem.

Federally backed loans, for one thing, regularly go to the wrong people – in 2003-04, nearly 30 percent of students from families earning more than $100,000 a year got them – and they make tuition more expensive for everyone. And while federally subsidized loans – on which Democrats are now focusing after promising to cut rates on all federal student loans during the campaign season - go to fewer wealthy families, they still tend to benefit well-off students and those whose parents understand how to game the system

Look at it as a matter of supply and demand. Say the average per-pupil cost of college is $100, and most students are covering it with loans carrying 10 percent interest rates. What would happen if the federal government were to slash those rates in response to complaints that college were too expensive? Almost certainly, students would be willing to pay higher tuition prices.

Of course, with their new purchasing power, many students would no longer be satisfied with their colleges’ old amenities. They’d demand nicer dorms, better recreation centers, and tastier food, and colleges that wanted to compete would have to meet those demands. To afford those improvements, however, schools would have to raise their tuition, wiping out the affordability gains of cheaper loans, inspiring new complaints about college costs, and completing yet another turn in the college-cost spiral.

This is not just theoretical. According to data from the College Board, inflation-adjusted aid per full-time equivalent student grew to $10,113 in 2005-06 from $4,108 in 1985-86, a 146 percent jump that more than doubled the rate of cost increases and greatly inflated students’ purchasing power.

The result: “They want tuition increases to be basically nonexistent,” Tulane University president Scott S. Cowen explained in November about many parents and students, “yet they want Jacuzzis in the dorms, small classes, and a number of other things. What gets lost on them is that these things cost money.”

Similarly, former Emory University president William Chace recently wrote that “the more you want us to give to you, the more we will be asking you to give to us. We aim to please, and that will cost you. It’s been a long time since scholarship and teaching were carried on in monastic surroundings.”

Despite the clear connection between cheap money for higher education, ever-more extravagant student demands, and skyrocketing college prices, many policymakers continue to claim that aid is the solution rather than the problem. Instead, they finger an old favorite: The notion that states have drastically cut funding to their public colleges, forcing schools to raise tuition.

It’s baloney.

According to the latest U.S. Department of Education figures, far from dropping, real state funding for colleges and universities has risen dramatically over the last couple of decades, jumping to $62.9 billion in 2000-01 from $40.1 billion in 1980-81. On a per-pupil basis, according to the State Higher Education Executive Officers, while state funding has tended to rise and fall in cycles, in 2001 it actually reached an inflation-adjusted 20-year high of $7,124. So states haven’t cut their funding, it’s just been eclipsed by the astonishing growth in money coming through students.

Which brings us back to the obvious: A fundamental cause of skyrocketing college costs is that student aid has simply been far too cheap and plentiful, pushing demand ever higher and allowing colleges to charge ever-more exorbitant prices.

But why, if this is so obvious, do politicians continually try to deflect public attention from the real cause of the college costs crisis, and champion the same-old inflationary policies?

The answer is politics, pure and simple. Politicians must have votes, and the best way to get them is to bribe as many Americans as possible. So they offer as much aid to as many people as they can, and give themselves endless credit for helping all citizens fulfill the American Dream. The political payoff is immediate, and besides, they figure, when things get worse there will always be another First 100 Hours to do it all again.

Neal McCluskey is an education-policy analyst at the Center for Educational Freedom, and author of the upcoming Cato study Why We Fight: How Public Schools Create Social Conflict.