The Crisis of College Costs

The Washington Post today reports that median household income has increased 17.6% since 1980 while the tuition, room and board at American universities has increased 120.7%. Moreover, the financial maneuvers that families had counted on to deal with universal university inflation have evaporated: students had counted on inexpensive student loans, but after the financial crisis, these have become more expensive and harder to come by. Parents had been using home equity loans, but since housing values have collapsed, home equity has disappeared. In the meantime, declining tax revenues and Wall Street bound endowments have prompted universities to cut back on grants and other financial aid.

Education experts are now worrying that universities will start sacrificing quality. Here are a few brief inter-holiday thoughts to get policy makers thinking about ways to turn this situation around:

1. Maintain the Democratic Congress that values education. If we start thinking we can allow our financial mess to pressure us into sacrificing quality at universities, we are sorely mistaken. In an era of booming trade deficits, our higher education system is still one product (if you want to call it a product) that the world prefers. In this increasingly culturally flat world, we want to ensure that foreign students will want to continue to come to the US to learn and then stay on as risk-taking innovators.

2. Invest in Pell Grants and change the requirements so that some of the middle class can qualify for them. Right now, many middle class families do not qualify for grants and are afraid of racking up tens of thousands of dollars (or even hundreds of thousands of dollars) of debt.


3. Expand Americorps and its student loan forgiveness program. Create more service opportunities so that more college grads have the chance to teach and engage in other forms of service while reducing student loan debt. Expand student loan forgiveness for other post-graduate service programs. More students will take risks and attend college if they know that they have somewhere to go after graduation.

4. As I have written before, expand the Peace Corps and turn it into the Green Corps, spreading carbon free energy throughout the world. If incomes stay flat, consider working student loan forgiveness into Green Corps service. For every month of Green Corps service, the federal government will forgive 5% of the loan. Allow Green Corps volunteers to serve more than one two year term.

5. Universities need to continue to examine needless spending. It is obvious that the increase in university costs have not translated into better economic opportunities for all Americans. If these expenditures did make a difference in the economic well-being of the American people, then median family income would have increased at a faster rate. Truth be told, if you look at the graph in the Post article, median income declined or remained flat from 2000 to 2009 while the cost of universities exploded from 74% to 120.7% (in comparison to 1980). In some cases, universities are spending money trying to create the most chic student housing. In other cases, administrators are being paid ridiculous amounts of money. Perhaps we need a governmental commission to make recommendations and then some kind of government action to enforce them (ie, certain states and universities do not get federal funding if they do not abide by the recommendations).

It is true that some of these proposals will cost money, but it will be money we will invest in our future, money that will increase future economic activity and thus reduce future debt. As for cutting unnecessary costs, all universities have some sense about how to do that.