This blog addresses America’s too biggest problems:
Slow economic growth averaging just 2% since the end of the Great Recession in June 2009. Faster growth means more jobs and better paying jobs.
Massive federal debt now 77% of GDP (for the $14 trillion public debt on which we pay interest) and predicted to continue getting worse without a change in policy. As interest rates go back up to normal historical levels the interest payments on this debt will increase greatly and be a huge drag on the federal budget.
As I have reported recently, college costs are growing much faster than healthcare costs which are growing faster than the cost of living in general. The excessive costs of education and healthcare are, in turn, holding back economic growth.
For every increased dollar of student aid, college tuition increases 60 cents.
Outstanding student loan debt has risen from $200 billion in 1996 to $1.3 trillion today.
The highest default rates on student debt occur for community college students (23%) and for-profit college students (18%).
The economist Richard Vedder has made some excellent suggestions for addressing this whole problem:
Simplify the entire federal student air system. There should be only two programs, one grant program (Pell grants) and one federal loan program (Plus loans, tuition tax credits, work study, etc.).
Give educational vouchers directly to students to empower recipients to weigh costs more closely. These would be strictly limited to low-income students and would be accompanied by modest academic expectations.
Require schools to have skin in the game. Schools with abnormally high loan delinquency rates should have to pay a tuition “tax” to the government to help cover costs.
Conclusion. “Financial aid has caused tuition to skyrocket. If we can’t abolish it, we can at least simplify it.”
We will soon have a new President and, even though his election was somewhat of a fluke, he will obviously want to help the blue-collar workers who elected him. The best way to do this is to make the economy grow faster.
The Gallup economist, Jonathan Rothwell, has just issued an excellent analysis of some of the major reasons for our current slow economy, “No Recovery: an analysis of long-term U.S. productivity decline.”
Says Mr. Rothwell:
The problem is severe. U.S. GDP growth per capita has declined from 2.6% in 1966 to .5% today. Small differences expand into vast gaps in potential living standards. 1% growth for the next 35 years would expand household income from $56,000 in 2015 to $79,000 in 2050 (inflation adjusted), whereas 1.7% growth would raise household income to $101,000 in 2050.
Changes in living standards are fundamentally linked to changes of how the quantity of goods and services relate to their cost. Deterioration in the quality-to-cost ratio for healthcare, housing and education is dragging down economic growth. These three sectors alone have increased from 25% of GDP in 1980 to 36% of GDP in 2015.
The cost of healthcare is 4.8 times as high today as in 1980, the cost of education is 8.9 times as high today as in 1980 and the cost of housing is 3.5 times as high today as in 1980. These compare to an overall cost increase of all items of 2.5 times today compared to 1980.
These three sectors have all gotten more expensive (without getting more productive), thereby absorbing more of families’ incomes, making it harder to satisfy other wants.
Conclusion. We all want schools that work, adequate housing, and quality healthcare. The problem is how to achieve these ends in a much more affordable manner. Stay tuned!
In two recent posts, here and here, I have established that:
Rapid increases in federal student aid in recent years have led to tuition increases at both public and private educational institutions and for both undergraduate and graduate students.
American higher education is increasing the divide between the haves and the have-nots in the sense that college degree attainment is increasing much faster for those students from higher income families.
Furthermore, students at private, nonprofit (most prestigious) institutions have higher graduation rates and lower debt levels compared to students from public institutions who, in turn, have both higher graduation rates and lower debt levels than students at for-profit colleges (least prestigious).
As if this isn’t bad enough, it gets even worse! The Federal Reserve Bank of St. Louis has just reported, “Why Didn’t Higher Education Protect Hispanic and Black Wealth?” that “White and Asian college grads do much better than their counterparts without college, while college-grad Hispanics and blacks do much worse proportionately.” (see above chart).
In short, the federal government is spending more and more money on higher education, which, in turn, is making colleges and universities more and more expensive. Whites and Asians from higher-income families are graduating in much higher numbers and with minimal debt, while college-grad blacks and Hispanics are mired in huge levels of debt.
How should society address this severe inequality in higher education?
Federal student loans should be limited to $30,000 for undergraduates and $60,000 for graduate students, the average amounts borrowed today for each category of student. Beyond these limits, students could still borrow from the private market, but with no subsidies or loan guarantees provided by the government. This single action alone will help to hold down college costs.
All students, and especially those from low-income families, should be encouraged to avoid excessive college debt. There are many high quality, low-cost educational institutions all around the country (e.g. UNOmaha where I teach) to meet their needs. It should be strongly emphasized that an expensive, prestigious institution is not needed to obtain a good education.