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Wednesday, September 8, 2010

The downward spiral of college subsidies

College student debt now exceeds credit card debt in America.

But it is such an important “investment” by our government? Maybe not.

College costs keep increasing at a faster rate than everything else. So politicians predictably try to subsidize the cost of college even more so that students don’t get priced out of going to college. Most of these subsidies take the form of loans and loan guarantees.

But what is the result? Instead of accepting the law of supply and demand, these increased college subsidies allow colleges and universities to notch up the price of college by the amount of the subsidy. That’s right; the benefits of these subsidies go to the college establishment (professors, administrators, football coaches and janitors). The subsidies relax the push back (and lower demand) that normally results when prices get too high. So it is a vicious cycle; subsidize college more; the cost of college increases enough to absorb the new subsidy; and then subsidize college even more to make up for the increased prices caused by the earlier subsidies.

The end result is a bubble like we had in the housing market. But instead of having neighborhoods full of empty foreclosed homes you have ghettos of young adults with degrees in Psychology or Sociology, $100,000 in student debt and no job prospects that would ever make it possible to pay off these loans. Not to mention the US government holding billions in unpaid student loan guarantees that penalize our grandchildren.

But this is only part of the problem with all of these subsidies. The silly college curriculums like Gender Studies, Sociology & Ethnomusicology get the same subsidies as Electrical Engineering, Petroleum Engineering and Accounting. At least the degrees in science and engineering have a chance of making the US more competitive.

And since so many families don’t really question what Johnny wants to study at college, we have far too many of Johnny’s friends spending six years of tax-payer and family-subsidized college education with little learning that will translate into a more competitive US. The average student cares simply about having enough cash flow (with loans and parent subsidies) to get though another year in college. The future pain of being deep in debt with no marketable job skills is the least of an 18 year-old’s worries.

As a country we need to discourage student debt and we need to start reducing subsidies for college. We might need to rely less on the traditional lecture format and find far more efficient teaching methods like computer-assisted and on-line learning. $160,000 degrees in Medieval German History are not doing the trick today.

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