Wednesday, March 28, 2012

More Students, More Aid, More Debt

Here are two articles to place side by side: Joanna Chau, writing in the Chronicle of Education, reports that numbers of students in college went up this past year and that the percentages of students receiving financial aid and taking out loans increased. Sociologist Jackson Toby, writing in Minding the Campus,  warns that "[t]he total size of [the student] loan portfolio exceeds the total credit card debt of the American population," that students have been defaulting on their loans, and that we face massive defaults on student loans. Toby compares the lending of money for higher education to the sub-prime mortgage lending crisis, which had its origin in extending mortgages to people who were poor credit risks. Ultimately, Toby suggests, these loans will actually end up as the responsibility of taxpayers. Toby, author of an important book on the problems created by providing financial aid without regard to academic performance, is also critical of giving tuition money as an outright gift.  He observes that "the Pell grant program has been an expensive drain on the [federal] budget that continues to grow." Reading Chau's piece in the light of Toby's suggests that the increase in numbers of federally subsidized and borrowing college students should be seen as a serious problem for the nation, not a cause for celebration.

Compounding the problem is that fact that making more money available for higher education increases effective demand, and thereby drives up costs. The figure below, drawn from data of the National Center for Education Statistics (NCES), shows the average tuition and fees in public and private universities from 1974-75, the year that I graduated, to 2006-2007. 

Average Tuition and Fees in Public and Private Universities (in Hundreds of 2007 Dollars), 1974-75 to 2006-2007

On average, it now costs more to attend a public university than it cost to attend a private one back in the mid-seventies. Financial aid and loans, together with the greater demand created by more people going to college, help to push up college costs and the higher college costs, in turn, result in heavier subsidies and bigger loans. Eventually, as Toby suggests, taxpayers will end up paying for much of this. 

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