Saturday, June 22, 2013

Do our loan programs for higher education fuel the inflation of higher education costs?

College tuition has increased much faster than overall inflation, and indeed even faster than the cost of medical care.

Why do prices rise? Economists inform us that they do when demand exceeds supply.

College enrollment has increased, according to the graph above. That is an indication that more people are going to college. Enrollment depends on several variables:

  • The number of people who want to go to college;
  • The number of people that the colleges are willing to admit. When I went to the University of California (three campuses at one time or another), they severely limited the number of students that they would accept. With the growth in the number of institutions of higher education, there are more places for students.
  • The number of people who can afford to go to college.

The demand for college education may be related to the increase in use of student loans. The balance of student loans is not more than a trillion dollars. In general, student loans have looked pretty good since they have had lower interest rates than other kinds of borrowing such as credit card debt or even mortgage debt. This means of course that the students themselves now owe a trillion dollars that has gone into college and university coffers.

How about the supply of college educational services. Relatively little has been done to make college educational services more efficient by using improved technology. The numbers of students in relatively low cost two year colleges have remained fairly stable while the numbers in more expensive four year colleges has grown.

There is an expected lag in training college faculty to meet an expanded demand for college teachers. The lag is less for teaching assistants than for senior faculty, but the rate of increase in student populations for decades, and indeed there have been reports of overproduction of PhDs.

Perhaps we need to rethink our cultural approach to higher education.

  • There are a lot of students who would earn more during their lifetimes by developing a skill rather than receiving the college education that they seek. We need lab technicians as well as carpenters and electricians as well as white collar workers. Perhaps we should try harder to direct these folk away from universities and into training programs appropriate to their economic interests.
  • There are people who would be happier in these trades, and perhaps we should do more to help them find and train for the avocations.
  • There are professions that are needed by the nation, and many of these (by definition) have social benefits that are not captured in the remuneration of the practitioners. We should provide public subsidies for the training of these professionals and not depend on their funding their own education by borrowing.
  • There are people who want forms of education that we can see as consumer services -- the study of literature in foreign languages comes to mind. It seems to me that these folk should be allowed to buy all those services that they are willing to afford, and indeed to borrow within the limits of ability to repay to buy those services.

No comments: