by Mitch Kokai
Senior Political Analyst, John Locke Foundation
The latest Martin Center column features remarks from economist and higher education critic Richard Vedder, delivered recently during a speech in Raleigh.
… [W]hat explains the explosion in higher education tuition fees? From 1840 to 1978, tuition rose about one percent a year more than the overall inflation rate. Since the incomes of Americans were rising two percent annually, college was becoming more affordable. In the next 40 years, 1978 to 2018, however, tuition rose about three percent annually more than inflation, and also much faster than income growth, which actually slowed down. The burden of financing college rose sharply.
Why did this happen? The reason reflects the explosion in our huge and dysfunctional federal student financial assistance program, especially student loans.
Before 1944, we had no federal student support and limited support (mainly the GI Bill) between 1944 and the late 1960s. In the 1970s, federal student loans became prominent.
As then-Education Secretary William Bennett observed in a 1987 New York Times op-ed, the colleges, realizing that kids could borrow large sums to help pay for college, started raising fees aggressively.
Research by a number of scholars at the New York Federal Reserve Bank of New York and at the prestigious National Bureau of Economic Research confirmed that Bennett was right. The best estimate is that for every dollar more federal assistance provided each student, schools raise their fees by 60 or 65 cents, capturing a large majority of the federal aid.
Student loans help schools much more than students.
And within schools, the increased revenues have financed a massive expansion of administrative staff, some reductions in teaching loads for tenured and tenure track faculty, and increased student amenities—things like climbing walls and lazy rivers.