April 19, 2014

Brake: Policymakers Should Focus on Education, Not Student Aid

As the dust settles from President Barack Obama’s and the Democratic Congress’ sweeping federal takeover of health care, another federal takeover came to light earlier this week, snuck in at the last minute by White House and Congressional negotiators — the massive student loan industry. Apart from the dubious merits of including this nongermane piece of education legislation in a health care bill (another ornament on this 2,700-page Christmas tree of a bill that few legislators have even read), the provision raises the specter of another aspect of the American economy coming under the control of federal bureaucrats. Supporters of the measure argue that they are only removing the “middleman” from the process, thereby saving taxpayers billions of dollars in bank fees. We’ll see about that.When was the last time you heard of the federal government, lacking the strictures of the profit motive, ever performing a service cheaper than the private sector? Also, it is rumored that the primary reason that the provision was placed in the health care bill to begin with is that any savings that would accrue from the reform will be earmarked to help pay for the new health care entitlements that are back-loaded in the statute. My guess is that, in the end, this “reform” will wind up increasing, not decreasing, the cost of borrowing for college-bound Americans.Be that as it may, perhaps the most troubling aspect of this new federal intrusion in the higher education marketplace is its underlying assumptions about the best way to control college costs. Whether it has been efforts to increase Pell Grants, or now this student loan fix, President Obama and his allies in Congress, driven I believe by the best of intentions, have assumed that by increasing federal aid to students, this will help them better afford college. And there is no doubt that college costs have skyrocketed recently, more than doubling the rate of inflation over the past 20 years.However, every time the federal government has increased aid to students, colleges have turned around and raised tuition and fees accordingly. Couple that with the increased demand for college that has occurred during the same period, and the result has been exorbitant tuition hikes by both public and private universities. It has been said that the road to hell is paved with good intentions, and if that is true, then it would seem that there is a little bit of the devil in these student loan details.Finally, absent from all of these discussions is a debate about what college students (and their cash-strapped parents) are getting from their higher education investment. As tuition rises, has there been a concomitant increase, for example, in the academic quality of a college degree? Actually, there is now empirical evidence that can finally speak to that issue, and unfortunately, the results are not encouraging.

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