Rewarding inefficiency

One Cent’s Worth
By MARC MEWSHAW  |  September 5, 2012

As Obama barnstorms swing-state college campuses, he's making affordability of higher education the centerpiece of efforts to cast himself as wonkish hipster against Mitt Romney's rich, out-of-touch white guy. Campaign posturing aside, Obama's right to tackle the issue of college costs head-on. After all, student loans recently surpassed credit-card debt as the single biggest source of consumer debt in the US. In fact, the cost of higher education has outpaced inflation by a factor of five over the last decade.

One major culprit is state legislatures' slash-and-burn approach to balancing their budgets. As the recession throttles subsidies to public education, state schools jack up tuition to make up the shortfall. (Private colleges trend even higher, but with state prices climbing, they can reach for the moon.) For their part, students and families have obligingly — if grudgingly — continued to pony up.

In short, it's a seller's market. Thanks to both cultural forces and a demographic bulge known as the "echo boom," there are more students seeking admission to universities than ever. Schools can charge virtually whatever they want and still fill every seat in every lecture hall twice over.

Much as universities have little incentive to reduce costs from a supply-and-demand standpoint, likewise they have no profit motive to reduce inefficiency. Unlike conventional businesses whose survival in the marketplace hinges on offering the same (or better) service for ever-lower costs, colleges don't compete on price but on prestige. In order to improve their ranking and lure the best students, public universities are under pressure to keep student-to-professor ratios low, entice star faculty with offers of low teaching loads, build the most blinged-out, state-of-the-art facilities, and provide the cushiest dorms. If anything, this "academic arms race," as it's been called, actually rewards bloat and cost-inefficiency.

Many see an even darker boogieman lurking behind the swollen price tag of college: the ready availability of student loans. Faced with tough decisions between budget cuts and tuition hikes, the theory goes, cash-strapped colleges more often than not take the easy way out and pass the buck to students. The assumption is that students will simply absorb the extra cost by taking out more in student loans. Happy endings all around, right?

Except maybe for those pesky kids left holding the bag.

Unfortunately, this is where our eagerness as a society to embrace the gospel of higher education for all may have backfired. In order to open up the dream of a college degree to everyone, student loans have been made extremely easy to obtain. The prevailing winds of culture tell us that, as the key to upward mobility and affluence, a college education is worth every penny. Most kids assume that with a degree in hand, they'll go on to find well-paying jobs and be able to cover their debts shortly after graduation.

We've seen how that tends to work out these days. When four years later those same kids catch up to the can they've kicked down the road, what might have looked like a reasonable expense to 18-year-old eyes suddenly reveals itself for the millstone it often is: on average, a $24,000 mountain of debt that can't be forgiven by bankruptcy. With that suffocating burden waiting to greet them at the gateway to adulthood, they're then set loose on a workforce that often has no place for them. Indeed, according to a Department of Labor study in April, just over 53 percent of recent college graduates are either unemployed or underemployed.

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