October 22, 2014

College Costs, Student Loans Are on Unsustainable Paths

  • Discretionary spending is the portion of the federal budget determined through the Congressional appropriations process. Approximately one-third of...

Higher education costs have been in the spotlight recently as President Obama and Sen. Elizabeth Warren (D -Mass.) have pushed loan refinancing plans to ease the debt burden facing many young Americans and their parents.

While refinancing loans could help, a more comprehensive solution would be for Washington to work with colleges and universities to curb the unsustainable rise in college costs.

Obama last week acted to cap more student loan payments at 10 percent of a borrower’s income. But the Senate defeated Warren’s plan to let borrowers with long-standing government loans refinance at lower interest rates.

Over the last decade, college costs have grown much faster than both inflation and median household incomes. Meanwhile, the number of people with student loans has climbed to 39 million, up from 23 million, and overall student loan debt has surpassed $1 trillion.

The government, which subsidizes colleges and universities in many ways, must do more to encourage structural reforms in higher education to curb the rapidly rising costs.

Some analysts, in fact, warn that federal subsidies have encouraged waste and higher costs. In testimony to the Senate Budget Committee this month, Richard K. Vedder, director of the Center for College Affordability and Productivity, said:

“Indeed, a very good case can be made that federal student loans have fueled an academic arms race financed in large part by rising tuition fees.” This, he said, “has led to a proliferation in higher education bureaucracies, expensive recreational facilities, lower teaching loads that have funded largely unread esoteric research, bigger subsidies of intercollegiate athletics, and other spending unrelated to promoting the core university mission . . .”