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Student debt and skyrocketing college tuition are terrible burdens for young adults, and Sen. Bernie Sanders promised to forgive their loans and make public colleges free. Former Vice President Joe Biden, in an effort to woo young voters, offers to expand federal income-based debt forgiveness programs and make state universities tuition-free for families with incomes under $125,000.
Higher education should not be so recast as an entitlement but rather the decadence of present arrangements should be targeted for pro-market reforms.
College should not be so expensive. The cost of hiring decent instructors for most disciplines—such as economics, physics or Western literature—is not high as compared to a good lawyer, architect or most other professionals. The problem is federal student loans have relieved universities of virtually all market discipline and accountability.
In 1972, the Federal Higher Education Act made government guaranteed student loans through banks and the Department of Education widely available. That put tens of thousands of dollars in the hands of teenagers to select colleges and programs of study.
Opportunities—previously reserved to the wealthy and professional classes, veterans through the GI Bill and working-class families that made Herculean sacrifices—were made available to virtually anyone with the wit and grit to complete four years of study.
In their early years, student loans offered a great investment. College graduates usually earned more and worked in more pleasant conditions than the factories, farms and supporting services where most folks labored. Aspirants could pay off loans much as businesses do for new equipment and enjoy better lives in the bargain.
Universities never perceived themselves as trade schools but rather as places that prepared a managerial elite exposed to the academy’s liberal values—the latter changing with the times but often challenging the prevailing social order.
Easy access to money borrowed by 18-year-olds permitted universities to enroll too many unqualified students, spawn huge bureaucracies, and offer faculty light teaching loads, while promoting majors in fields like sociology, gender studies and English literature that offer too few good employment opportunities upon graduation.
Subsidizing these choices drove college costs through the roof. Over the last two decades, tuition is up 37% more than health care and 77% more than the general rate of inflation.
Colleges and universities enroll about two-thirds of all high school graduates but about 40% of those drop out without earning a degree and are saddled with student loans a $15-an-hour job can’t service. And about 25% of college graduates earn no more than the average high school graduate.
Consequently, about half those who enroll as freshmen make a bad investment. Either they wash out or earn a degree that leaves them no better off financially and are saddled with loans no reasonable banker should have approved but for government guarantees.
Certainly, something should be done for all the young people who were lured into poor choices by university admission officers and faculty hungry for students. Heavy student loan debt is keeping young folks from buying homes, marrying and starting families and taking the plunge to start businesses.
As the federal government now holds or guarantees 90% of all college debt, it can wipe away those loans by issuing more bonds—something capital markets are more than willing to absorb—and then suing colleges that defrauded students to fetch back some of the losses.
However, market discipline must be brought to universities. To enroll students with federally guaranteed loans, universities should be required to freeze tuition until the inflation-adjusted cost of college is in line with health-care inflation over the last two decades. And universities should be required to borrow against their endowments, buildings and land to provide half the funds for student loans—and take losses if those are not repaid.
Professors would spend more time in classrooms, majors that offer too few employment opportunities would scale back, and bureaucracies such as those that enforce political correctness and promote academic tourism—winter break courses in Spain—would lose weight.
A lot more unqualified applicants would be turned away and instead could be encouraged to enroll in the Labor Department’s apprenticeship programs, where participants earn while they learn and usually garner starting incomes that beat those of college graduates.
