Just by coincidence, college costs have also been rising much faster than inflation for the past several decades. Or perhaps it's not coincidence. From 1982 to 2003, health care prices increased by 195 percent. Tuition at universities increased by 296 percent over the same period. Just as government has distorted the health care market with mandates, tax exemptions, and limitless subsidies, so it has distorted the higher-education market with ever-ratcheting grants and loans.
Economist Richard Vedder, in "Going Broke By Degree," outlined the trap into which politicians continually fall.
"... America has gotten itself into a vicious cycle with respect to higher education financing that goes like this: In year 1, tuition goes up fairly substantially. Political pressures build to 'do something' about the increases. Congress expands guaranteed student loan programs to make education more affordable, in turn increasing the demand for education and allowing universities in year 2 (or year 3, depending on the lag) to raise prices further. The result is a further expansion of student loan programs, state scholarship efforts, and other third-party funding."
Between 1994 and 2005, financial aid payments increased by 11 percent per year. This huge subsidy has permitted colleges and universities to increase their already exorbitant tuitions, but has not, Vedder argues, resulted in increased quality. Administrative staffs have ballooned, undergraduate instruction has been shortchanged, and salaries for faculty have doubled since 1980. To his own surprise, Vedder also found that increasing state support for institutions of higher learning not only does not result in greater economic growth, it is actually a net loss.
President Obama proposed in February to meet the challenge of rising education costs in the following way: to increase Education Department funding by 31 percent, to $77.8 billion, and to make Pell grants a new entitlement that will automatically expand to cover the number of new students who qualify.
The United States, like other developed nations, was on a glide path toward entitlement meltdown even before Barack Obama ascended. But his acceleration of the descent has been stupefying. If the health care/student loan behemoth passes, Democrats will have combined two of the greatest follies of recent decades.
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