The College Tuition Disease

I been doing my homework now for a long time
And everything that I look for I know I will one day find
I'm a fool so I'm told I get left in the cold
Cause I will search the world for that fool’s gold 

                    Graham Parker 1976

$42,000 a year! That's what a friend recently told me it cost to go to Indiana University, my alma mater.  I had a great time there, and it's a pretty good school, but if you think your kid will be able to pay back $168,000 before they turn 35 with an IU degree, you're dealing thin.  The same could be said of just about any school in the country.

Skyrocketing college tuition has become a hot topic, with Time magazine recently devoting their front cover to it.  Many private schools have blown past $20,000 and $30,000, and are now in the 40s and 50s.  The average debt a student has after school is above $25,000, and for plenty of them it’s over six figures. The strange thing is that most articles that discuss the price don't even talk about the reason that it's going up, just the hardship.  It's as if somebody had a killer disease and all the doctors were only concerned with treating the symptoms, without figuring out what caused the problem in the first place.

Hopefully the following example will explain why prices are rising and how to quickly cure the disease:

Let's say you start a business that makes widgets.  You decide to charge $10 for each one. Unfortunately, you find out that the huge majority of your customers can't afford this price.  You quickly realize that you're going out of business unless you lower the price.  Just as you're about to do so, a man named Fast Freddie comes to town. 

Freddie's a great guy; all he wants to do is help people.  He starts loaning all your customers money so that they can afford the $10 widget.  You're thrilled, as now you don’t have to lower prices.  As time goes on you decide to test how nice a guy Freddie really is. You raise your prices to $15.  Obviously no one can afford it.  But Freddie steps in and lends even more money to your customers, so they can cover the $15.  You, being the sharp businessman that you are, keep raising prices because you, like everyone else, like money.  Before you know it, the widget that should be about $5 costs $50.  There's no end in sight.  As long as Fast Freddie keeps lending your customers virtually unlimited amounts of money, you're going to keep raising prices.

          You get this, right? Over 90% of college loans are now paid for by Fast Freddie, oh I mean the government. This has completely and totally distorted the free market, to the point that we have runaway inflation in college tuition. 

          The solution is simple. Get the government out of the moneylending business for college, and watch costs plummet.  But this is not going to happen. Why? Politics, like virtually everything else it seems nowadays.  No politician can get up and tell the truth.  He would immediately be criticized as a coldhearted, out of touch snob who is especially biased against the poor and middle class, who can least afford the sky high cost of college tuition. The sad thing? The current system hurts the poor more than anyone.  The rich guy or gal can either pay for tuition or have to borrow very little, so their kid doesn’t graduate with an oppressive debt load.  It's the poor and middle class that are now getting out of school as indentured servants.

          Go ask your father or grandfather what college cost before the government got involved. 

          Have a good night everyone.

 JR