Obama's Uneducated College Gambit

President Obama's executive fiat to relax the rules for repaying college loans was a calculated political ploy aimed at placating student voters and liberal academia. However, his gambit will do nothing to solve the national crisis of skyrocketing costs for tuition at private and public universities.

Instead of addressing the real problem, the president choose once again to rely on the federal government as the remedy.  Yet by providing financial aid and subsidized loans, the federal government is enabling colleges to raise tuition costs without any concern for the impact on students' ability to pay.

A 2007 study by University of Oregon economists produced compelling evidence to support that claim.   Their research found that universities "tend to absorb most federal student aid by increasing their tuition revenue."  In other words, as grants increase, universities are embolden to raise tuition costs.

Patrick Callan, president of the National Center for Public Policy and Higher Education, took note of the same issue in a recent interview. "For 25 years we've been putting more and more money into financial aid and tuition keeps going up.  We're on a national treadmill."

In the midst of an anemic economy, tuition and fees at public colleges soared eight percent this year.  Private universities raised tuition and fees by 4.5 percent  On average over the last 30 years, college tuition rates have increased at double the general inflation rate.

As a result, the average tuition at a four-year public university for in-state students now stands at $21,447 annually.  The same costs at a four-year private college average $42,224.  However, with financial aid, the average net price paid at both private and public universities is significantly less than those costs.

Students at public colleges pay on average about 75 percent of the advertised tuition costs.  Their counterparts at private universities only shell out an average of 66 percent of the sticker price for a higher education, according to the College Board.  As these figures illustrate, financial aid helps insulate students from price increases.

To keep pace with escalating costs, financial assistance to college students has ascended at a  blistering 438 percent over the past three decades, the College Board estimates.  This spike in funds is the result of dramatic increases in federal grant and loan programs.

For example, last fiscal year the government doled out a record $12.2 billion in Pell Grants to needy students.  Government student loans totaled $130 billion.  Throw in another $250 billion in private loans and you have $392.2 billion in financial aid funneled to college students in a single year.

Those billions are only the tip of the iceberg.  The federal government estimates there are more than 88,500 loan and aid programs administered by Washington, the states, private foundations and scholarship organizations in the United States.  

But often government financial aid comes with a catch.  Students must repay the money, except in the case of Pell Grants.  The College Board estimates that the average student graduates with $24,000 in debt.  A full 10 percent of students have loans of $40,000 and more.  Two-thirds of students who graduate owe money for college loans.

All those billions in loans are adding up to a potential giant headache for the economy.  This year total outstanding student loan debt passed $1 trillion, which exceeds consumer credit card debt in America.  By easing rules on loan repayments, the president risks triggering a wave of student defaults and adding to the growing problem of unpaid balances.   If that happens, the government will be faced with the prospect of another costly bailout.

Public and private universities have dodged any blame for escalating costs.  They point to price increases for everything from scholarly journals to pay for professors.  However, studies have shown that the lion's share of the tuition increases at many institutions have gone to add buildings, facilities, gyms, technology and to upgrade dorms.

Academic leaders also justify tuition increases by pointing to cuts in state funding.  They act as if the only solution is higher prices to offset reduced subsidies.  Unlike any other business, they reject the idea of paring budgets to reflect new economic realities.

Meanwhile, there is no credible evidence that the added spending has improved the quality of higher education.  Parents and students are paying more money for the same education, albeit in fancier buildings fitted with high tech gadgets.

That's why the president's pandering to young voters and the elitist university establishment is such a  pathetic gesture.  Too bad the president's own college degree did not better prepare him to address the issue of runaway higher education costs affecting students and their parents.