The public is in a foul mood over increasing college costs and student debt burdens. Talk of a “higher education bubble” is common on the contrarian right, while the Occupy Wall Street crowd is calling for a strike in which in which ex-students refuse to pay off their loans.
This week, President Obama held a summit with a dozen higher-education leaders “to discuss rising college costs and strategies to reduce these costs while improving quality.” The administration plans to introduce some policy proposals in the run-up to the presidential campaign.
Any serious policy reform has to start by considering a heretical idea: Federal subsidies intended to make college more affordable may have encouraged rapidly rising tuitions.
It’s a phenomenon familiar to economists. If you offer people a subsidy to pursue some activity requiring an input that’s in more-or-less fixed supply, the price of that input goes up. Much of the value of the subsidy will go not to the intended recipients but to whoever owns the input. The classic example is farm subsidies, which increase the price of farmland.
There is a widespread feeling, which the recession has intensified, that higher education is unfairly insulated from the everyday competitive pressures most people have to cope with. Instead of having to find ways to operate more efficiently and deliver ever-more value without raising costs, the way private-sector managers do, college administrators seem able to pass higher and higher bills on to their customers and the public.
A good chunk of the educated public has decided that college educators are decadent and lazy. Many are positively lusting to see higher education get its Detroit-style comeuppance.
This attitude is unfortunate and often unfair, but it’s the direct result of decades of federal policies. Any strategy to reduce college costs needs to look beyond traditional subsidies to remove some of the insulation that stifles innovation and feeds public resentment.