What was once part of the American dream has now become, for many, an American nightmare. In 2012, the nation was shocked by a stunning new fact: outstanding student-loan debt had reached $1 trillion — an amount rivaling credit-card and car-loan debt. Today, that figure is $1.5 trillion and growing — with no end in sight.
What are we doing to our young people? We insist they need more postsecondary education to compete in an increasingly globalized and automated world. To obtain this education, many students assume loans resembling a home mortgage. But here’s the catch: with a home mortgage, there’s at least the prospect of some residual equity. With student loan debt, far too often there’s no guarantee of anything, because the student hasn’t received the promised education, or doesn’t obtain a degree or certificate.
No other developed country treats its young people this way. According to the Committee for Economic Development, between 1982 and 2012, the consumer price index was relatively flat given low inflation. During this period, American health-care spending (already growing at an alarming pace) rose twice as fast as the CPI. What most Americans probably did not realize is that postsecondary-education spending rose twice as fast as health care – four times CPI growth. Meanwhile, median family income during this period hardly budged.
This enormous debt load hurts our economy. Young people are moving back with their parents, delaying home purchases, and starting families much later. This debt load also hurts older people. The “Wall Street Journal” reported recently that older Americans also had significant student-loan debts — either their own or the loans they assumed to fund their children’s postsecondary education. Americans 60 years or older now owe $86 billion in student-loan debt.
Three critical questions arise: how did this situation happen, who’s to blame, and what can we do about it?
Seeking a competitive edge in attracting students, many American colleges and universities launched massive spending programs: student housing, sports and recreation facilities, student clubs, health care, libraries, computer centers, facility renovation, plus increased administrative staff to maintain compliance with increasing state, federal, and accreditation demands. These amenities and expenses are not typically found in foreign postsecondary institutions where the infrastructure is relatively modest. The late William Bowen, an economist and former Princeton president, deemed such expenses a “cost disease.”
To attract and retain students, many institutions post high sticker prices which are then subsequently discounted. When endowment funds prove insufficient to offset the discounts, these schools recruit students who can pay the full price. Many of these students come from abroad. The entire pricing structure is irrational: it’s like going to Nordstrom’s and finding six different prices for the same pair of shoes, depending on a bizarre and confusing array of factors.
As for blame, there are three suspects: those who govern, manage, and fund our postsecondary institutions. Governing boards and administrations have failed miserably at controlling costs and providing a cost-effective education. Some critics also blame the federal government for enabling tuition increases that seem to follow inexorably every federal grant increase. Strapped by growing Medicaid and prison costs, many state legislatures have reduced postsecondary-education funding. To offset these reductions, there has been significant “cost shifting” to students and parents. But the cost-shifting does not excuse the fundamental failure of boards and management to restrain costs.
The solution is not to make college “free,” as some “new progressives” suggest. This approach only exacerbates the problem by removing incentives for better cost control and more efficient resource use. Spending better is always harder than spending more. To stop the upward cost spiral, we must address the structural and governance problems that created the problem.
We need a national effort — debate plus action — to tame this cost-and-spending beast, not accommodate it. We must decide what we want our young people to learn and be able to do from their postsecondary experience. Is the experience to educate young people for both citizenship and work? If we need better vocational training, then we should study closely the German experience which provides cost-effective job training.
Many young people today are understandably questioning whether postsecondary education is worth the cost. Wise human capital investments are key to future American innovation, growth, and productivity. We need to stop wasting our young people’s time and money — as well as that of taxpayers — and take a hard look at the fundamental structural reforms needed now.
Charles Kolb served as deputy assistant to the president for domestic policy in the Bush White House from 1990-92. From 1997-2012, he was president of the Committee for Economic Development, a nonpartisan, business-led think tank.
The views and opinions expressed in this commentary are those of the author and do not reflect the official position of The Daily Caller.