Other views: The ‘higher education bubble’

  • Posted: Wednesday, July 10, 2013 8:06 a.m.

Congress went home for the Fourth of July holiday last week. This is not to be confused with baseball’s July 15-18 All-Star break.

In their rush to leave Washington, Congress failed to stop the interest rate on the most favorable student loans from doubling – 3.4 percent to 6.8 percent. If not reversed soon, that increase will impose a potentially heavy cost on the millions of students and their families who have taken out such loans to afford a college education.

Conservatives concerned with huge federal deficits wanted to cut the scope of the loans, citing a Congressional Budget Office study that found they will cost roughly $100 billion or more over the next decade due to delinquencies. Liberals felt the government isn’t doing enough for the students and their parents. If, as the study reports, the program will not pay for itself at 6.8 percent, imagine what that would do to the deficit. Others debated whether the interest rate should be fixed, as at present, or float with the market.

But there’s one underlying question that most federal lawmakers overlooked; What about the obvious relationship between federal funding for higher education and the soaring costs of higher education over the last decade?

Former U.S. Education Secretary William Bennett has warned that college costs have climbed in large part because of that federal aid. That makes sense. Economics 101 students should understand that increasing demand for a limited good leads to higher prices. And when you increase the number of students, that’s the result.

There is no question that federal aid to colleges and universities is a major cause of growing enrollments, which have climbed by about 40 percent over the past 20 years.

Yet the higher education lobby maintains that there is no reason to connect rising enrollments – which create expensive competition for students with newer, more lavish dormitories and other attractions – are connected to rising education prices. And the number of college and university administrators has doubled over the same period – another expensive shift. Of course, expanding higher education opportunities for Americans is a worthwhile endeavor – if it’s managed in a fiscally sound manner.

But intensifying concerns about soaring student-loan debt, and what critics call the “higher education bubble,” warrant an honest national debate.

And the looming doubling of student-loan rates is just one element of that crucial discussion.

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