Higher Ed, Higher Cost: Solving the Education Crisis

America’s economy is changing rapidly. The sectors that require higher education are fluctuating as new markets arise and new technologies are developed. As our jobs become more service based, our workers require certain intellectual and technical skills. Due to this need, a college degree is becoming almost an absolute necessity in our society. Without it, you can be viewed as unprepared or unmotivated by a prospective employer.

Now I do not think that everyone should go to college. There are certain fields that require a trade school certification or merely on-the-job experience. Furthermore, some people are not created for the school system. These people perform better communicating or working hands on rather than sitting in a lecture hall listening to a professor for hours. For these people, it is not wrong to bypass college and the cost and time it requires. These people may be able to find success in specific career fields that do not require college degrees.

However, the fact of the matter is that more careers are now requiring a post-highschool degree. Recognizing this need, our nation’s children are going to college at greater rates than ever. But at the same time, they are facing higher tuition, higher fees, and higher housing costs than ever. This is leaving our nation’s next generation buried in debt–$1.2 trillion in total actually. The only way for many students to get through college is to graduate with debt possibly up to a quarter of a million dollars for expensive private schools. The debt problem also differs depending on the type of school a student attends.

  • At public colleges, average debt was $25,550 — 25% higher than in 2008, when the average was $20,450.
  • At private nonpro t colleges, average debt was $32,300 — 15% higher than in 2008, when the average was $28,200.
  • At for-pro t colleges, average debt was $39,950 — 26% higher than in 2008, when the average was $31,800 (2).

Perhaps even more importantly, this debt crisis seems to be worsening every single year.

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Additionally, this is a widespread problem affecting the vast majority of students at all types of schools.

  • 66% of graduates from public colleges had student loans.
  • 75% of graduates from private nonpro t colleges had student loans.
  • 88% of graduates from for-pro t colleges had student loans.

The problem with debt is limitless. College graduates will face tougher challenges buying a home, affording basic necessities, attending graduate school, and having children because of this fact. Debt imprisons our students. Our future economy will be strangled if most citizens’ purchasing power is held back by mountains of debt. This is especially problematic for our poorest students who want an education in order to achieve economic success in life. “Graduates who received Pell Grants, most of whom had family incomes under $40,000, were much more likely to borrow and to borrow more. Among graduating seniors who ever received a Pell Grant, 88% had student loans in 2012, with an average of $31,200 per borrower. In contrast, 53% of those who never received a Pell Grant had debt, with an average of $26,450 per borrower — $4,750 less than the average debt for Pell recipients with debt.”

This needs to be stopped.

So how do we fix it?

First, I think it’s crucial to understand the economics of how we got here. I am not a degreed economist, but I do have some training in the area as it will be my eventual degree, and I have done my research. As we discussed earlier, young Americans are going to college at ever-increasing rates.

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Knowing simple supply and demand curves, we know that increasing the demand for college will increase the price. Since the number of students is increasing faster than the rate of new colleges being built, the price tag on tuition has risen. This is the natural flow of economics. The stock amount of colleges with finite amounts of faculty and classrooms puts upward pressure on tuition. Sadly that natural flow is hurting average Americans. Now, how much is tuition really increasing?

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As the graph shows, tuition has increased almost 2,000% since 1970. This has come alongside inflation of just 500% and a 20% increase in college enrollment. Also, it is interesting to note that public tuition is now outpacing private. It seems that both types of schools are experiencing rapid tuition increases, yet public colleges are experiencing the crisis even more. This may be due to the more rapid increase in public college enrollment.

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So how can we address this problem? Well, the simplest technique seems to build more colleges. The government could build more public colleges or provide incentives for more private universities to be built. This seems like a possible solution but would definitely be a longer-than-preferred process and also an expensive process. However, maybe this is not the problem as the amount of colleges has increased 46% since 1980 while college enrollment has increased 20%, yet the data do not detail the amount of students these new colleges can hold.

The second driver of tuition is the rising cost of living and the competition for expert faculty and administrators.  They may be receiving higher pay, yet the average American has seen measly wage increases over the past many years. This leaves American students with a higher burden. However, colleges are attempting to offset some of that cost for faculty competition with greater amounts of non-tenured part-time faculty who are paid less than tenured full-time faculty; however, this now leaves more faculty with relatively low salaries. Studies find, “Part-time and adjunct professors, who make up a growing share of faculty, earn just a fraction of what executives make, at about $2,700 per course. A part-time professor with a master’s degree teaching eight courses makes about $19,200 annually.”

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This is especially troubling as although the average salary for full-time faculty has increased almost 100% in the past decade or so compared to a 50% increase for college presidents, the amount of full-time faculty is decreasing. An even more worrying problem is that the 50% increase for full-time faculty salaries does not even outpace inflation.

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Additionally, administrators are being hired in greater numbers and with higher pay in order to manage new roles for the rise in student services and other areas. It seems that colleges’ management roles are bloating by extreme numbers detrimentally impacting tuition.

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These students services can consist of fancy options like better dining hall food, athletic facilities, and the like. Since all colleges are expensive and the cost is often thought of as far down the road, students may often pick the college with the “cooler” features and amenities even though it is more expensive. Therefore, this encourages colleges to continue adding these services further driving up tuition.

Important to note, tuition may not be the core problem to fight. Tuition will need to keep rising in order to adjust for inflation and to compete for faculty. Therefore, in order to maintain educational quality at a particular university, tuition may need to keep rising. However, the rise in tuition is the problem which can be kept down by limiting the amount of administrators and perhaps the amount of student services. Another way we can combat the tuition crisis is through financial aid.

Think of financial aid like income taxes. At the end of the year, each American reports their own income and pays a specific rate according to the income bracket into which they fall. Due to this, the wealthy are charged higher rates than the poor due to their higher incomes. This is a great system, which ensures that the poor are not disproportionately affected by paying taxes. The poor pay a lower percentage as their relatively little money holds much more importance to them compared to the wealthy.

This system of graduated rates would simply be too complicated to apply to college tuition. Students would not be able to compare price tags on universities without providing their financial information to each school first. Therefore, the reverse of the tax method is implemented through financial aid.

Students all apply facing the same price tag for a university. Then, they provide their financial information. The school makes its admissions decisions and offers each student an individualized financial aid package based on a family’s income. This allows for the rich students to pay the full price tag while poor students–who could otherwise not afford higher education–to pay a lower fraction of the price tag.

Sounds great, right? Not so fast. Many schools simply do not have large enough endowments to provide every student with proportionate financial aid. The schools face this battle while trying to keep tuition high enough in order to afford expert faculty.

So how do we fix this problem? When the private sector cannot respond effectively with unfettered capitalistic economics, the government must step in. The government provides a few grants, which help offset the cost of tuition minorly without the need for repayment. The rest of the price tag can be supplemented through federal loans.

Federal loans sound like a great solution! However, college students are stuck paying higher rates than they would if they bought a home. This comes naturally with the territory as homes act as collateral for a mortgage whereas there is no collateral for student loans. A student cannot give a bank his or her degree in exchange.

With loans, students are still stuck paying mountains of debt back to the government for years after graduation. Therefore, some politicians have proposed programs such as the expiration of all loans after a certain amount of years if the loan amounts to more than 10% of the student’s income. For example, President Obama passed some student loans reforms. “Borrowers of new loans starting in 2014 qualify to make payments based on 10% of their discretionary income. New borrowers would also be eligible for student loan forgiveness after 20 years instead of 25 on qualifying payments.” This seems like a noble endeavor as students who are finally freed from their debts can invest more into the economy. However, the government could technically lose money with this approach as students would be, in a sense, defaulting on their loans leaving the government without that repaid loan money.

Also, federal loans may actually make the problem of rising tuition worse. If students do not feel any restraint in borrowing money to obtain an education, colleges know that their demand curve is price inelastic. This means that the colleges can then keep raising tuition without fear that students will no longer attend that school. This is especially true when most people do not think about the future and all the debt that they will eventually have to pay. This problem of making the government foot more and more of the bill could be remedied with government price controls and regulation, which may not be politically popular.

So how can we fix this problem without burying students in more debt and without putting the government deeper into debt? One answer put forward by some people, such as Senator Bernie Sanders, is to make public college tuition free for all citizens. Secretary Hillary Clinton has proposed a similar plan for all families making under $250,000 per year.  The reasoning is that if we think of a grade school education as critical for economic and social success and now a college education is just as critical, then such education should be a right for all citizens. This would then eliminate all possible debt worries at least for public college students. This effort may then have a downward pressure on the price of private college tuition, therefore, helping all students.

Related to Sanders’ and Clinton’s plans is the data that show that decreased per capita public investment in higher education has actually been the main driver of the tuition increases. If government sees higher education as a social and economic necessity via funding, the colleges will not have to raise tuition as much. Of course, someone always foots the bill as there is no such thing as a free lunch. However, deciding where to send that bill depends on what is the most economically and financially intelligent method.

The potential challenge with making public education free, though, is the unintended effects on small private colleges. Those less well-known schools may lose their enrollment to public colleges that have become free. Faculty may be laid off and campuses closed. The counter to this is that the subsequent growing demand for public college would necessitate a need for more faculty at those schools. Therefore, the laid off faculty from small private colleges would merely transition jobs to a public college.

Regarding other plans to curb tuition, others have proposed that students becomes more fiscally responsible when deciding between two colleges where one is more expensive than the other. Maybe students should be aware that saving money is more important than the fancy student services the more expensive school may offer. This could be a solution, yet this is not a step that can be institutionalized. It would require more of a cultural change, which would honestly not deliver positive results rapidly.

Others propose that students should opt to spend two years at a less expensive community college and then graduate with a degree from a more prestigious, expensive university. This could reduce the strain on private colleges, yet it would put even more pressure on public colleges who are already facing faster increases in tuition. Also, this is again a step that requires more of a cultural shift than an institutional change. If the country wants to quickly reverse this dangerous trend of skyrocketing tuition and mounting student debt, government policy must be enacted. Also, students need to lead the charge in demanding that their colleges stop the bloating of the amount of administrators and their pay.

Another critical answer lies in economic theory. If we cannot stop the rise of tuition and the cost of living, then we need to raise American wages for average Americans to be able to once again afford higher education. We need to take actions to help the middle-class, such as increasing the minimum wage. As I have argued previously, a raise in the wage would put more money into middle-class pockets allowing that money to have a higher chance of being spent and boosting the economy, which in turn could lead to more job creation. Also, with higher wages, Americans would not be forced to work two jobs or eighty hours per week and could instead spend that extra time getting an education. More reading on such a wake hike in available in Why Raise the Wage? Furthermore, we could implement tax cuts on the middle-class leaving more money in their pockets allowing them to stimulate the economy even more. We could pay for these tax cuts through raising taxes on the wealthy, who after all have seen a drastic cut in their share of federal revenue from taxes over the past few decades. We could close tax loopholes prohibiting wealthy investors from making millions while paying little to nothing in taxes. Therefore, we could have a progressive tax system once again rather than a regressive one. This would prevent the government from incurring any further debt itself.

We cannot solve the higher education crisis without addressing the middle-class economic crisis. The two go hand in hand. If we address the latter, the prior will become much more manageable. This is all achievable when we finally push off the hands of wealthy corporations and lobbyists from influencing our elections and our policies. We need a government for the people, by the people, and of the people. A government for all people; not just the few.cropped-new-logo.jpeg

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