Wednesday, February 27, 2008

College Tuition Subsidies

I've written about government subsidies and college loans before. Now, the topic is receiving lots of publicity because all the candidates think it's important. It's my belief that the chief beneficiaries of government loan subsidies are the colleges themselves. The government ups loan limits, magically, tuition increases. and voila! college students are screwed.

Now, Ilya Somin sees the benefits of rising tuition costs, and makes that case that compared to not having a college education, receiving a college education is a good deal. So, that's his reasoning for no subsidized tuition:

Even at the most expensive private universities, four years of tuition, room, and board is unlikely to cost more than $180,000 or so (the approximate cost of four years at Harvard at maximum tuition rates). And, as Becker notes, many students (especially the poor) don't pay the full sticker price because of widely available financial aid and merit scholarships. The income gains of getting a higher education far outstrip the tuition. The vast majority of students can therefore afford to pay for college by borrowing against their future incomes, and still have an enormous income gain left over. Thus, there is no reason for government to subsidize college tuition on the grounds that it is "unaffordable" - even for those students who are unfortunate enough to have to bear the full cost themselves, without parental assistance.
Well, I didn't have parental assistance for any of my college and worked my way through all of them. And ten years out, I'm still paying loans off even with the income gains. What I don't think Somin is factoring in, is that the loans are such a heavy, long-standing burden, they affect the next generation.

Of course, the kids whose parents are paying the bills are at a huge, long-term advantage. Those who pay off their own loans for years, to the point that they're not saving for their own children perpetuate a cycle of governmental indebtedness. It's just not a good pattern. And yeah, there is free will. And yeah, the professional life is much better than I expect I would have had without the education. And yeah, it's worth it.

Still, my reasons for disliking governmental subsidies are different. Without them, the institutions wouldn't be subsidized. They'd have less students entering. There would be more competition. They'd have to control costs. Students would benefit.

Either way, I want the government out of the college loan business.

H/T Instapundit

6 comments:

David said...

His argument is silly. To a large extent, the financial value of a college degree lies in its signaling value...ie, it helps employers determine who has the skills,rather than actually creating the skills. If the number of people attending college were to double, their educations would not generate sufficient economic productivity to allow their real incomes, on the average, to rise to the extent indicated by today's college/noncollege differential.

kman said...

I agree... college was all about being able to stick with it and get the degree... it was proving you had the ambition and some minimum level of intelligence although I got an EE degree... college may not prove a minimum level of intelligence for business majors. ;)

Seriously though... in most cases it's the type of people getting their degrees not having the degree that makes them more financially successful.

Networking of course factors into it... but from my experience the most valuable networking occurred after college and not during.

Anonymous said...

When we sold our first home, we used almost the entire profit to pay off my husbands college loan. He had help from the government because he served in the Marines, but the loan we had, was still huge. It is a burden for so many people and we hope that we will be in a position to pay most of our children's college.

Anonymous said...

I agree... college was all about being able to stick with it and get the degree...

As in drinking until you pass out at least four days of the week? While Mommy & Daddy & the student loan agent pick up the tab so you can drink and screw for FREE?

Anonymous said...

I think there was a commentary on Wall Street Journal last week that whenever the government gets more generous in student loan limits, the colleges immediately raise their tuition costs to match, leaving the students exactly where they were before.

sandy said...

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