Soaring college costs have become a problem for an increasing number of families in recent years. According to a 2013 study by the Federal Reserve Bank of St. Louis, education costs jumped 165 percent from 1993-2011, while the broad price level increased just 56 percent. Student loan debt has doubled just since 2007 and stands at about $1 trillion, exceeding auto loan debt ($783 billion) and credit card debt ($679 billion).
To address this and other college-opportunities issues, President Barack Obama and first lady Michelle Obama hosted a summit at the White House last week for college presidents, business leaders, philanthropists, and representatives of nonprofit organizations focused on preparing students for college and helping them to earn their degrees.
In his remarks, President Obama hailed commitments by colleges and nonprofit organizations to ensure that new students are up to speed on math and English skills and expand outreach, mentoring and student advisory services.
"Today, more than 100 colleges and 40 organizations are announcing new commitments to help more young people not only go to, but graduate from, college," the president said. "And that's an extraordinary accomplishment and we didn't pass a bill to do it."
This sort of voluntary action and reliance on private initiative is a departure from the usual top-down, government-mandated approach typically adopted by the administration, and it is a very welcome change. In fact, there should be much more leadership of this sort, and much less in the way of regulations imposed by faceless bureaucrats and 1,000-plus-page bills passed in the dead of night that no legislator has fully read.
Government interference in higher education has greatly contributed to the inability of many to afford a college education. As the St. Louis Fed study concluded, "[T]he federal government's involvement in providing financial aid to students may have led to unchecked growth in college costs."
In fact, there are some stark parallels between the current student loan situation and the housing bubble that burst in 2006-07. Just as it might have been a laudable goal to get more people to become homeowners, it may be a laudable goal to send more kids to college. But encouraging people to incur more debt than they can handle through artificially low interest rates and government subsidies does not end well.
Below-market-rate student loans, federal Pell grants and subsidized work-study programs do for college students what Federal Reserve-suppressed interest rates, the Community Reinvestment Act and other housing policies did for homebuyers. The results: inflated higher education costs, hundreds of thousands of unemployed and underemployed recent graduates forced to work as taxi drivers, janitors and waiters, and a new debt bubble that will eventually burst when a large numbers of students discover that they cannot pay back their loans on their coffee barista earnings.
As even President Obama acknowledged at last week's summit, "The government is not going to be able to continually subsidize a system in which higher-education inflation is going up faster than health care inflation."
REPRINTED FROM THE ORANGE COUNTY REGISTER