Federal Intervention has Caused College Costs to Spiral Out of Control, and Obama Promises Even More Intervention — So Expect Costs to Continue to Skyrocket as Five Big Lenders Profit from the $1 Trillion Student Loan Debt

The more the government subsidizes tuition, the higher tuition rises. College tuition costs have nearly tripled since 1980. In his book, "Going Broke By Degree: Why College Costs Too Much," Dr. Vedder argues that increased federal spending on higher education has contributed to rising tuition costs. In other words, federal subsidies are not making higher education more affordable because colleges and universities simply consume this additional source of revenue. On the supply side, this federal aid makes universities less sensitive about their own costs. "Increases in financial aid in recent years have enabled colleges and universities blithely to raise tuition, confident that Federal loan subsidies would help cushion the increase," then-Secretary of Education William J. Bennett said in 1987. The "Bennett hypothesis" -- the theory that as long as the government ensures the bills will get paid, colleges will raise tuition -- makes sense, especially in light of Washington's guarantee of an affordable college education for all who want one. [Source]

Increased availability of student loans should theoretically make college more affordable, but research has proven government lending to be grossly counterproductive. Though these programs attempt to make school more accessible to people of low income, they have defeated their intended purpose by driving tuition costs up exponentially. Initially, banks refused to offer loans to college students, because young adults typically lack any substantial assets or collateral. The abnormal nature of this market eventually led to government involvement in funding of higher education, but with many unintended consequences. Universities race to absorb the greatest portion of federal funding by raising tuition costs. This research builds upon the Bennett Hypothesis, an idea circulated in the 1980s by U.S. Secretary of Education William J. Bennett. Many factors play a role in the convoluted issue of spiked tuition costs, but a strong case can be made for the Bennett Hypothesis. [Federal funding directs tuition, The Daily Evergreen, September 28, 2010]

Obama Decries Rising Cost of College Education

January 27, 2012

AP - President Barack Obama called Friday for an overhaul of the higher education financial aid system, warning that colleges and universities that fail to control spiraling tuition costs could lose federal funds.

The election year proposal was also a political appeal to young people and working families, two important voting blocs for Obama. But the initiative faces long odds in Congress, which must approve nearly all aspects of the president's plan.

See: Obama Seeks Votes by Offering Student Loan Relief

Speaking to students at the University of Michigan, Obama said he was "putting colleges on notice" that the era of unabated tuition hikes is over.

"You can't assume that you'll just jack up tuition every single year. If you can't stop tuition from going up, then the funding you get from taxpayers each year will go down," Obama said on the final stop of a three-day post-State of the Union trip to promote components of his economic agenda.

Obama told the largely supportive student audience that the nation's economic future depended on making sure every American can afford a world-class education [Editor's Note: this is the same ole government propaganda which caused spiraling tuition costs].

"In the coming decade, 60 percent of new jobs will require more than a high school diploma," he said. "Higher education is not a luxury. It's an economic imperative that every family in America should be able to afford."

The president first announced the outlines of the financial aid proposal during Tuesday's State of the Union address. His plan targets what is known as "campus based" aid given to colleges to distribute in areas such as Perkins loans or in work study programs. Of the $142 billion in federal grants and loans distributed in the last school year, about $3 billion went to these programs. His plan calls for increasing that type of aid to $10 billion annually.

See: Meet 5 Big Lenders Profiting from the $1 Trillion Student Debt Bubble (Hint: You Know Some of Them Already)

He also wants to create a "Race to the Top" competition in higher education similar to the one his administration used on K-12 to encourage states to better use higher education dollars in exchange for $1 billion in prize dollars. A second competition called "First in the World" would encourage innovation to boost productivity on campuses.

See: Race to the Top or Race to the Trough? The Federal and Corporate Takeover of Public Education in America

Obama is also pushing for the creation of new tools to allow students to determine which colleges and universities have the best value.

Education secretary, Arne Duncan, said Friday that institutions of higher learning should get federal dollars based in part on their performance.

"Historically, we've funded universities whether or not they've done a good job of graduating people, whether or not they've done a good job of keeping down tuition," Duncan said on MSNBC's "Morning Joe."

Some in the higher education community are nervous that the Obama administration could be setting a new precedent in the federal government's role in controlling the rising costs of college.

The administration has already taken a series of steps to expand the availability of grants and loans and to make loans easier to pay back. During the State of the Union, Obama spelled out other proposals to make college more affordable, such as extending a tuition tax break and asking Congress to keep loan interest rates from doubling in July.

His administration has also targeted career college programs — primarily at for-profit institutions — with high loan default rates among graduates over multiple years by taking away their ability to participate in such programs.

See: For-profit College Enrollment Soared 418 Percent; as Much as 80 Percent of Their Total Revenue Comes from Federal Student Loans

But until now, the administration has done little to turn its attention to the rising cost of tuition at traditional colleges and universities.

The average in-state tuition and fees at four-year public colleges last fall rose 8.3 percent and, with room and board, now exceed $17,000 a year, according to the College Board. Rising tuition costs have been blamed on a variety of factors, including a decline in state dollars, an over-reliance on federal student loan dollars and competition for the best facilities and professors.

Sen. Lamar Alexander, R-Tenn., a former education secretary, said the autonomy of U.S. higher education is what makes it the best in the world, and he's questioned whether Obama can enforce any plan that shifts federal aid away from colleges and universities without hurting students.

"It's hard to do without hurting students, and it's not appropriate to do," Alexander said. "The federal government has no business doing this."

The Rising Cost of College

Michelle Singletary, Washington Post Writers Group - For many families, the cost of higher education is out of reach, while others can manage it only if they take on debt that could take decades to pay off.

President Obama, meanwhile, has lofty goals for higher education. In his first joint address to Congress, in 2009, the president said the United States should "once again have the highest proportion of college graduates in the world."

To be first again, the Department of Education says 60 percent of young adults would have to obtain either an associate or bachelor's degree by 2020. That means 8 million more young adults between the ages of 25 and 34 would have to earn their degrees.

"Every American will need to get more than a high school diploma," Obama said.

But how are families going to achieve this when the sticker price for a college education has roughly tripled since 1980 in inflation-adjusted dollars?

To reach Obama's goal, we have to decide, as a matter of public policy, if college is a right or a privilege.

In the U.S., graduates who received a bachelor's degree in 2008 borrowed 50 percent more (in inflation-adjusted dollars) than their counterparts who graduated in 1996, according to a report released last year by the Pew Research Center's Social & Demographic Trends project. Among borrowers, the average debt for bachelor's degree recipients increased 36 percent from $17,075 in 1996 to $23,287 in 2008.

However, that average borrowing figure masks the pain felt by many students and graduates. We know many are strapped with an oppressive amount of debt that requires them to stretch payments out for 20 to 30 years. We've come to expect high debt for students getting medical or legal training because there's a promise of high salaries. Yet, increasingly, students with no promise of six-figure salaries are accumulating loans with six-figure balances.

So here we are in graduation season and a pair of studies released this week by Pew provide insight on what people think about the cost of college. One survey polled the general public, including graduates. The other, in association with the Chronicle of Higher Education, surveyed the presidents of 1,055 two-year and four-year private, public and for-profit colleges and universities.

In the general public poll, 75 percent of respondents said college is just too expensive. Among respondents 18 to 34 and who did not have a bachelor's degree and aren't currently enrolled in school, 48 percent said they couldn't afford a college education.

The cost is making people wonder if college is worth it. In the survey of the general public, a majority of respondents said they don't believe the higher education system is providing students with good value for the money.

Among all survey respondents who took out college loans and are no longer in school, about half said that paying back the loan has made it harder to make ends meet; 25 percent said it has made it difficult to buy a home; 24 percent said it has had an impact on the kind of career they are pursuing; and 7 percent said they have delayed getting married or starting a family.

Even a majority of college presidents say that most people cannot afford a college education today.

So if it's in the best interest of the country to educate people so they can qualify for better-paying jobs, who should foot the college bill?

See: 80% of College Students Expect Government to Take Care of Them

College presidents overwhelmingly said that students and their families should pay the largest share of the cost of a college education. The public doesn't agree, with only 48 percent favoring this approach to footing the bill. The majority believes the federal government, states, private donations and endowments, or some combination of the four, should cover the cost.

See: Instead of Refusing to Repay Student Loans, Students Should Be Refusing to Pay Tuition at Higher Education Institutions That Are Subsidized by the Taxpayers - Because of State and Federal Funding, Inflation is Out of Control in Higher Education (Tuition Has Tripled Since 1980)

Had it not been for a full scholarship to college, I could not have afforded to go without borrowing. My degree and lack of student debt have helped elevate not just my personal financial standing but also that of many in my family.

There are those who will decry even asking if college is a right or a privilege. Nonetheless the question must be asked and answered.

If going to college is a right and vital to our nation's economic standing, then government will have to do more to make it affordable for all. If it's a privilege, only the nation's wealthiest families will one day be able to send their children to college. Or we are damning a large percentage of our citizens to burdensome student loans, leaving them to conclude college isn't worth it.

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