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Ironically, these government handouts are creating the tuition problem. Tuition has risen about three percentage points faster than inflation every year for the past quarter-century. At the same time, the feds have put more and more money behind student loans and other financial aid. The government is slowly becoming a third-party tuition payer, with all the price distortions one would expect. Every time tuition rises, the government makes up the difference; colleges thus cheerfully raise tuition (and budgets), knowing the government will step in.
As a result, "colleges have little incentive to cut costs," says economist Richard Vedder, the author of "Going Broke by Degree: Why College Costs Too Much." Mr. Vedder explains that there are now twice as many university administrators per student as there were in the 1970s. Faculty members are paid more to teach fewer hours, and colleges have turned their campuses into "country clubs." Princeton's new $136 million dorm, according to BusinessWeek, has "triple-glazed mahogany casement windows made of leaded glass" and "the dining hall boasts a 35-foot ceiling gabled in oak and a 'state of the art servery,' " whatever a servery is.
<p>Loans are not free money, and can not be discharged by bankruptcy, so the government, through loan programs, is not paying anyone's tuition. </p>
<p>Grants have been frozen or near that for years. They are not even approaching the rate of tuition increase.</p>
<p>To equate Princeton's triple-glazed windows with rises in gov loan programs is just egregious. They're a drop in the budget (or Princeton's budget) there.</p>
<p>SS--you know where I work. My students get max Pells and can barely make it work, when they can. This college is operating on a shoestring--it's just keeping it's neck above water. We don't have state of the art "serveries" (don't know and don't care what they are) and our profs aren't gettng rich.</p>
<p>We're just trying to help some of the poorest kids in the country get a college education.</p>
<p>Bingo, here is a huge part of the problem, lets just make sure we empty out everyone's wallet:</p>
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Mr. Vedder wonders why universities should get to ask the income of their students before telling them how much they'll be charged. That sounds like price discrimination: If a car dealer tried to make you fill out the form students have to fill out for financial aid, he notes, "you'd run to a consumer protection agency."
<p>The piece is just ridiculous. Princeton et al are a world of their own. The vast majority of colleges have an incredible amount of deferred maintenance. They literally cannot afford to maintain buildings. </p>
<p>There's so little govt support for students' college education that it doesn't increase price. </p>
<p>And what would you author prefer? No increases in govt aid for students?</p>
<p>Imperfection is putting it mildly. You're just expected to pay for college, no other expenses. But I don't think government loans is the problem at all. I do think uncontrolled growth in administration is; I see it at the medical school where I work. Every time I turn around, we have a new dean at a dean's salary (big bucks).</p>
<p>Momfromme, you said it. visit my university, a state school, sometime, It's pathetic to the point of disgusting. Sometimes they don't refill TOILET PAPER saying they're over budget. Each department has to pay for drinking water. I was moved involuntarily off my floor- I have no water to drink on my floor. The water fountains were shut down as a cost-saving measure, so each department would pay for water instead of the university. The tap water is not potable.</p>
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But I don't think government loans is the problem at all. I do think uncontrolled growth in administration is...
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But don't you think the steady influx of government $$ acts to keep the cost high? If colleges don't have to charge market rates like other services or industries do, they are more prone to make fiscally unwise decisions such as your med school has. I find it very interesting that cost wise, the most out of control areas of our country are healthcare, housing, and higher ed. All three have enormous influx of government $$, and tremendous government interference.</p>
<p>Garland, the government guaranteed student loans have had incredibly high default rates for decades. If tighter controls are now in place, that's a good thing. But certainly all the free flowing cash has made decisions to attend expensive schools much easier, as well as making the administration more willing to expand & spend, spend, spend. (Especially if one had no intention of repaying! When I was in college 30 years ago, parents were taking out the max amount of student loans because the interest rate was about a third or half of what the market rate was. The cash was used for anything BUT college in many cases.) I think the luxury items such as rock climbing walls and sushi stations and yes, mahogany windows, are only considered because there is federal $$ flowing in to cover these items that students have come to expect.</p>
<p>SS--but like I said, those things aren't at the run of the mill college. Come over here, I'll give you a tour. No rock walls, sushi bars, or mahogany.</p>
<p>We're lucky if the computer labs have enough working stations and don't crash in the middle of a final (as happened in my class.)</p>
<p>Any article which asks its readers to believe that Princeton is a fair and representative example of colleges and universities in the United States is poorly informed at best, intentionally biased at worst.</p>
<p>Given that this is the new Murdochized WSJ, I tend to believe this is an example of the latter.</p>
<p>Economics 101 - Any time you add money supply to a market without increasing the quantity of output of goods and services, the end result is an increase in price per unit of output known as inflation.</p>
<p>It doesn't matter whether the money is lent or given to the student, the universities know that it is available for the taking and therefor will raise prices to extract every last dollar that is available.</p>
<p>Let's look at another example of subsidized loans that has caused a market to behave in an unpredictable manner - home mortgages. Somebody comes up with a scheme to allow more money to be lent to homebuyers (0-down teaser rates). Homebuyers feel the "wealth effect" (well known economic term) and spend on that commodity (housing) and other things as well according to what they have as opposed to what they need. </p>
<p>Along the way the real cost of that money sets in (jacked up interest rates that outstrip salary increases) leading to increasing forclosures, leading to falling housing prices, leading to decreased money available, leading to less demand and suddenly you have a downward cycle that is self-reinforcing. The market for the commodity (housing in this case) collapses and demand goes down the tubes with the prices. The houses have the same intrinsic (shelter) value, but the market now correcting (eliminating unsound lending practices and cutting back the new building). Eventually, the cost of housing will stabilized when the risk level of the funding is believed to be in line with the buyer's ability to pay without unsound subsidies.</p>
<p>In education, right now the increasing subsidized student loans seem to be managable by the greater majority of college students, once they leave college. However, there will come a point where the number of students defaulting on loans will outstrip the governments ability to guarantee payment to the lenders and a similar crisis will evolve. The government will eventually have to scale back how much loan money is available at that point and the resulting decrease in ability to pay will force schools to lower prices or have no students who can pay.</p>
<p>Unfortunately, I think we are a bit aways from the tipping point where government loans are defaulting, as the government has given a big hammer (cannot be forgiven in bankruptcy) to the lenders to continue behaving in an inrresponsible manner.</p>
<p>Now what the schools use this increasing revenue on is the matter for an entirely different debate which I think should be separate and I don't want a part of.</p>
<p>But the govt funds have lagged behind increases in college costs, not led them. This difference in timing completely undermines your economic argument.</p>
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But the govt funds have lagged behind increases in college costs, not led them. This difference in timing completely undermines your economic argument.
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</p>
<p>If the government increases in dollars spent to higher education funding were only in grants, I would agree with you. However, the vast majority of funding is in subsidy payments (interest while the student is in school) to lenders who lend out 15 times (assuming about 7% rate) that amount of the subsidy to the students receiving the loan. For example, $1billion in subsidies to college lenders (payments on interest while in school) supports $15billion in loans instead of $1billion in grants.</p>
<p>It is the investor money that is being drawn into the student loan industry by the government subsidy that is pumping up the revenues for the colleges.</p>
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the increasing subsidized student loans....
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</p>
<p>With the exception of this past Congress, when was the last time the Pell's were increased? Hint: it was at least five years ago.....</p>
<p>btw: IMO, the recent increase in Stafford is actually a way for colleges to decrease their aid since many need-based colleges start first with subsidized Stafford, add in work-study, and then give grants.</p>
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quantity of output of goods and services...
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</p>
<p>Actually, there are literally hundreds of colleges (which aren't discussed on cc) that go begging for students each and every year, so, on a macro level.....</p>
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Quote:
the increasing subsidized student loans.... </p>
<p>With the exception of this past Congress, when was the last time the Pell's were increased? Hint: it was at least five years ago.....
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</p>
<p>I'm not sure what you are saying here... Pell's are grants which haven't been increased, which is what I have been saying. It is the "loans" that have been increasing through loan subsidies which is increasing the funds available for purchasing college educational services.</p>
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btw: IMO, the recent increase in Stafford is actually a way for colleges to decrease their aid since many need-based colleges start first with subsidized Stafford, add in work-study, and then give grants.
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I agree with you here that this is also an effect of increased loan availability.</p>
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Quote:
quantity of output of goods and services... </p>
<p>Actually, there are literally hundreds of colleges (which aren't discussed on cc) that go begging for students each and every year, so, on a macro level.....
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Each school is providing a "unique" product which like any other economic good does have substitutes, just like any house is unique (although in many subdivisions they are very close - LOL). There are lots of areas where houses are vacant and readily avaiable (think Flint Michigan) just like there are plenty of schools that have open walk-up enrollment and plenty of classroom space. Not everyone wants to live in Flint, nor does everyone want to go to these universities. You'll probably notice that there aren't too many new home permits pulled in Flint and these undersubscribed colleges are not building new classroom space either.</p>
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It doesn't matter whether the money is lent or given to the student, the universities know that it is available for the taking and therefor will raise prices to extract every last dollar that is available.
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Very true. And like housing and healthcare, an incredibly complicated multi-tiered pricing system results, with very little connection to actual costs. It's enough to make a Libertarian cry. Even Baby Jesus is crying.</p>
<p>The recent Harvard & Yale announcements, directed at the full pay middle class, are market responses. Whether it is truth or perception, elite schools have come to the realization that top middle class students are gong elsewhere. They want these kids back, and these actions should do the trick. Was it the psychological trigger of reaching the $50K mark that sobered everyone up?</p>
<p>SS, government loans are not the reason administration costs have soared past the stratosphere.</p>
<p>I think you are on the mark re Harvard and Yale; every college should be appalled at the $50K-plus per annum price tag, and consider ways either to cut costs (won't happen) or subsidize the middle class that on paper doesn't qualify for "needs-based" aid.</p>