On July 1st, student loan rates are set to double, affecting millions of students like myself that find college costs increasing uncontrollably. The initial reaction from most of my peers and their parents is outrage. Why would anyone want to make it more expensive to go to college? Just last week Obama passionately urged students and their parents to press Congress for action that will keep rates low. Could it be too late? After all, a college education is essential in attaining a successful career, right? Well, before you start calling your congressman and posting a status on Facebook, you might want to consider some facts and distinguish intended effects from real consequences of government intervention.
Looking for a career in science? Make sure you brush up on your costumer service skills. “In the last year, [recent college graduates] were more likely to be employed as waiters, waitresses, bartenders and food-service helpers than as engineers, physicists, chemists and mathematicians combined,” reported an Associated Press study in April.
The study also pointed out that roughly 50 percent of all graduates, 25 or younger, are unemployed or underemployed. For now and the foreseeable future the outlook for graduates does not look promising. The U.S. Department of Labor projects that only 2 out of the 20 jobs expected to have the largest numeric growth by 2020 will require a bachelors degree or higher.
Statistics like these are likely to stay away from discourse in the classroom. As it turns out, the so called “common knowledge” about the parallels between a college education and a good job has been prodigiously profitable for those in the higher education market. The U.S. Department of Education reports that between 1990–1991 and 2009–10, prices for undergraduate tuition, room, and board at public institutions rose from $4757 to $12,804, and prices at private institutions rose from $12,910 to $32,182, after adjustment for inflation.
Some like to point to budget cuts as the origin of these price increases, but as we look at the president’s budget for this fiscal year, we get a much different view. The budget sustained a Pell Grant increase, which increases the maximum amount of money awarded to students. Also the federal government will award “$1.3 billion over five years in performance based funding to institutions that have demonstrable success in enrolling and graduating more high-need students.”
Though the intentions for wanting to make college more affordable for everyone are noble, the increases of government aid have accomplished the opposite of what was intended. Pell Grants, subsidized loans, and awards for colleges to increase enrollment have put more money into the hands of students. The, perhaps unforeseeable, unintended consequences are the increases in prices due to the increase in money available for college.
Year after year, the reality for students to pay for an education on their own has dissolved under a cloud of high prices and over-consumption. Indeed, there are other factors that affect the high cost of American universities, but very few will argue that artificially low rates are not the major culprit. To begin fixing the issue of unaffordable college education in America, Washington needs to understand that throwing money at any problem does not bring solutions.
A free market system depends on the information given by the individual interactions of people in the economy. The information is distorted when a coercive force (usually government) interferes with the interest rate and subsequently creates mistakes by consumers and investors.
Letting the artificially low rates expire will bring better information to the consumer about the real cost of attending college. Of course this is only one step in bringing costs down, but counter to what many politicians say, more government programs will only create more unintended consequences.
I would urge my college peers to revisit the issue and ask themselves how dependent they really want to be. Both economics and history show us that personal responsibility and independence do not come from a government hand out.