Why Are We Making a College Education Unaffordable?

If America is to compete successfully in the global economy, it must have a better educated workforce. One would expect we are doing everything possible to make a college education available universally.

Not quite. The federal government does much to make that happen — Pell grants, Perkins loans, Stafford loans — but does so in conflict with unrelenting tuition increases by our colleges and universities that pull in the opposite direction. Combined with a reduced economy that has caused states to cut back aid to their schools, the one-third of students who had to borrow to pay for an education a decade ago has risen to two-thirds now. The class of 2011 left school owing on average $27,300, the highest debt level ever.

President Obama, in the State of the Union address, called attention to one unhelpful burden that government does place on students — interest on those loans. He sounded the alarm that the interest rate is about to double on July 1 if Congress does not act.

On that date the original 6.8% rate will be restored. In 2007 it was reduced by half with a 5-year sunset clause. If that cutback is not renewed, some 8 million students will see an average of $5,000 added to their 10-year debt, and about $11,000 if their loan term is 20 years.

As the midyear date approaches, we can expect banks and other lending institutions that issue private loans to lobby for a return to the higher rate. The reason there are any interest charge at all is that the banks practically wrote the student loan law and saw to it that the government not compete with the private sector by demanding that it, too, charge interest.

Fast forward to the recession. Banks now borrow from the Fed at near 0% interest (and then buy treasuries rather than making loans to help businesses), whereas students borrowing from the government are saddled with interest rates far above what the rates have become. So the question in a zero-interest recession is, why are we making it more difficult for students by adding interest charges?

The banks also saw to it that even the private loans are not “dischargable” under bankruptcy. Of all classes of consumers, students are thus singled out with harsher bankruptcy rules than anyone who defaults on mortgages, car loans, credit card debts, etc. Those debts are eligible for dismissal in bankruptcy court; student loan debt stays permanently attached. That’s your Congress at work.

In an employment market in which graduates cannot find work to repay the debt, there is the growing risk of widespread default, as we reported in September in this article (which spells out the Draconian consequences that rain down should someone fail to repay a student loan).

The Obama administration has softened the blow somewhat with special provisions. If a graduate’s debt exceeds his or her starting salary, monthly payments are reduced to 15% of discretionary income and anything still owed after 25 years will be forgiven. Borrowers who remain a teacher or in another public service occupation are eligible for forgiveness after 10 years of payments.

But take note of that: students potentially still paying for their education 25 years later. It says how we are impacting the lives of our best educated. If they bring debt to a relationship, how does that forestall or even foreclose marriage (it’s been called the anti-dowry)? That in turn postpones having children, embarking on a normal life. How many will still be paying for their education when their own children need money for their education?

The root cause of the problem is the rate at which college tuition, room and board has risen unchecked — 538% over the last 30 years, four times faster than consumer prices, twice as fast as even health care.

Because states are strapped, schools dependent on their state’s support understandably had no immediate recourse from increasing the annual tab at a record pace in this recession — 8.3% last year to an average of $17,000.

But for the most part colleges have given no thought to the damage they have done by constantly raising tuition to pay for heedless spending, competing to make themselves attractive to students who in turn seem mindless about what the cost of those attractions will do to their future. Colleges were once rather austere, with under-heated rooms, double-deck beds and dreary food, but our youths now expect all the comforts of the homes they just left. So the colleges pile on “amenities” from food courts to sports palaces with olympic-size pools to recreation centers (climbing walls seem to have become a metaphor for this excess).

Worse still is the competition for star professors, who are lured with huge paychecks and minimal teaching requirements. Stanford's professors now get paid sabbaticals every fourth year that hand them $115,000 for not teaching. College presidents are paid in the millions, with compensation of the administrative echelons beneath them similarly elevated. Prestigious research is pursued even if not funded by grants. And it’s the students who pay for all of this.

Mr. Obama also threatened that federal aid would be reduced to those colleges that continue to increase tuition, and proposed a number of yardsticks to test the post-graduation success rates of their students in finding employment after graduation. Much of this, though, depends on approval by an uncooperative Congress. Even if it comes to little beyond rhetoric, the bully pulpit at least serves to turn the spotlight on the runaway tuition problem.

Students are at fault as well, naïvely taking on more debt than they will be able to handle, and then taking degrees in subjects that are not needed in the marketplace. So we frequently read of young graduates who are unable to find work, and a paragraph or two later learn that they were English majors, or studied French literature, or “communications” or anthropology or film-making. There are jobs out there, but employers are looking for degrees in science, engineering, math, electronics, software.

We don’t much hear anymore the cherished notion that a liberal arts degree produces someone of an intellectual breadth well-equipped to quickly learn on the job whatever skill is needed. That sounds quaint in the new world the nation faces.