Education Secretary Betsy DeVos caved on Thursday, agreeing to cancel $150 million in student loan debt in line with an Obama-era policy she previously tried to fight off. The specific debtors to whom DeVos finally succumbed qualified for “closed school” loan discharges, or those who attended failed, fraudulent private, for-profit colleges. While these debts were attributed to a specific, dying breed of colleges, the greater effect of student loans across colleges, public and private, nonprofit and for-profit, remains.
Federal financial aid and student loans in particular will continue to act as a piggy bank for bloated campus bureaucracies, and their tuition pricing can continue to spiral out of control.
The Bennett hypothesis (the theory that the less conditional and controlled access to funding directly causes colleges to further hike tuition and fees) has proven itself in abundance in the decades since the term was first coined by former Education Secretary William Bennett. The theory goes that as long as colleges know the taxpayer piggy bank will foot the bill, they’ll continue to increase prices — not for student benefit but to essentially widen their profit margins, even at nominally “nonprofit” institutions.
With DeVos in office, fiscal conservatives have been hopeful that she’d crack down on the college cartel and try to halt the student loan bubble’s economically terrifying growth. Perhaps she still will.
The austerity measures required to end this vicious cycle are harsh, but someone will have to do it sooner or later before the bubble bursts or before tuitions rise past $50,000 and even get close to six figures. Six colleges had 2017 tuition prices, not including room and board, which surpassed $50,000. and national student loan debt currently stands at $1.3 billion.
The evidence supporting the Bennett hypothesis is considerable for both for-profit and nonprofit colleges, including public schools. Last year, the Federal Reserve Bank of New York found that subsidized student loans result in a 60 percent increase in tuition, with the effect most pronounced at already expensive schools, private ones, and two-year schools. For-profit colleges qualified for federal student loans have tuitions 78 percent higher than their non-Title IV counterparts. Even adjusting for inflation, tuition at private universities have doubled and at public universities have tripled since 1980, even though student-to-faculty ratios have remained constant.
But as quality has remained roughly constant, taxpayers have directly employed a new, growing class of bottomfeeders: bureaucrats. In the last 50 years, the ratio of one campus administrator to every 84 students has fallen to one campus administrator for every 68 students.
As economist Andrew Gillen puts the effect of student loans matching the demands of price-makers, rendering student demand for college more inelastic as they think they can get unlimited funds to foot the bill:
In short, the federal government doesn’t require colleges to have any real skin in the game. University bureaucrats can bank on fellow colleges acting as a cartel, all increasing prices without increasing admissions or quality, and the people who wind up getting shafted by defaults (taxpayers) and those scammed by useless, expensive degrees (students) pay the price.
President Trump promised to help the forgotten men and women. Those include taxpayers, currently being sucked dry by the endlessly greedy college cartel happy to make a cheap buck or a billion, betting that the government will continue to fund them.
