The Feds Are Not Here to Help You

College costs too much, everyone agrees, and so numerous federal officials (from both parties) keep offering new ways to “help” with this problem. As usual, the government answer is to throw more money at it, even when “it” includes some of the wealthiest nonprofits in the nation.

As a recent discussion at the American Enterprise Institute makes clear, the federal schemes are destined to fail and backfire, wasting taxpayers’ and students’ money—because one of the biggest causes of the problem is the federal government’s expensive entanglement in higher ed.

The history of college costs reveals the federal government’s harm. In the past 35 years college costs have risen 1,120%, Bloomberg news calculates. College costs rose even faster than health care costs (which also received significant government subsidies). Those government dollars—over $80 billion a year—not only encouraged colleges to keep raising prices but also discouraged families from saving for higher education.

Consider these statistics from “Dollars, Cents, and Nonsense: The Harmful Effects of Federal Student Aid,” a new study presented at the AEI panel by lead author Richard Vedder. From 1960 to 1977, 18 years that saw little federal involvement in paying for college, the average percentage of household income put into saving accounts for college tuition was around 8.7%. In the next 18 years, 1978 to 1995, with only moderate federal spending on education, the saving percentage per household was 7.4%, a decline of 17%. Then from 1996 to 2013, the bottom dropped out as the savings percentage plunged an additional 50% to 3.7%—just as federal aid programs quickly grew large.

But, some insist, colleges are just raising prices because they need the money. Not exactly: The colleges who enjoy the richest endowments have the highest sticker prices. And here is a bit of wealth inequality you’re unlikely to hear a college professor denounce: the richest 1% of colleges possess 51% of all the endowments. In addition, while the Ford or Koch foundations are legally required to give away 5% of their endowments every year, colleges have no requirement to share their wealth. (AEI’s Alex Pollock joked that perhaps we need a “wealth tax” on the richest 1% of college endowments.)

Nor have college costs risen because colleges are getting better. Studies suggest that the hours students attend classes and study has dropped by nearly 50% since 1960. Measures of knowledge gained in college aren’t easy to come by, but repeated reports from the Intercollegiate Studies Institute find college students’ ignorance of even simple facts (like the three branches of government) to be poor and declining.

Vedder’s bottom line at the AEI discussion will shock parents and students repaying loans: After taking inflation into account, college prices today would be 59% cheaper if the government had not poured so many billions of tax dollars into “helping” with college.

The conclusion to the study Vedder led says it all:

In a perfect world, all federal programs would be abolished. But democratic political processes are imperfect. A realistic solution would drastically downsize the federal programs, making them more progressive (helping lower-income students more than upper-income students) and smaller. By returning the programs to what they were early in their history—modest but useful financial support to truly needy students—it will moderate tuition price inflation and reverse the decline in academic standards. It will contribute to returning the nation to fiscal responsibility while improving the nation’s higher-education system. In short, it is the right thing to do.

Here’s one more reform idea that came up at AEI: Since colleges benefit the most from student loans, they ought to share in the losses of their students’ defaults. That would be sobering for college administrators, who have helped place $1.2 trillion of current debt on the backs of their students, with almost 15% of borrowers defaulting on their loans within three years of graduation.

William Digges is a 2014 Henry Haller Intern at CRC who attends the Heights School.

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