The Price of Higher Ed

Thousands of newly-minted graduates will proudly parade in front of beaming family and friends to receive their college diplomas in the coming few weeks. Parents will cheer as their children attain the degrees that parents worked and saved so long to finance. Unfortunately, much of this celebration may be unwarranted.

While the unemployment rate for college graduates is significantly lower than that for non-grads, more than a third of college grads will accept employment in a job that doesn’t require a degree. Many of these will be working in sales, food services, customer service, or construction—probably not what they had in mind when they forewent four years of full-time employment to attend college.

Even for graduates who obtain a job that requires a degree, it is getting harder to justify the amount spent to obtain one. Nationally, 70% of graduates have student debt with an average debt of $29,400 (Utah graduates average $21,520). As a percentage of median family income, tuition at a public four-year college represented only 4% of median family income in 1970, reaching 11% by 2010.  Private tuition jumped from 16% to 36% of median family income during those years. Not only does this mean that it’s harder to pay for college, it means that tuition constitutes a larger portion of future earnings.

Federal funding is largely to blame for the precipitous rise in college tuition. While Pell Grants and federal student loans were intended to make college affordable to middle- and low-income people, by making money available to cover not only tuition but also living expenses, the federal government allowed colleges to increase tuition rates to levels that would previously have led to decreases in enrollment. Consider this: while average real cost per student rose from $18,122 in 1986 to $30,497 in 2006, students only bore a fraction of this increase because once grants, loans, and tax benefits are factored in, the cost only grew from $10,943 to $14,158.

Stated succinctly, government funding has distorted the higher education market and made students much less price discriminatory, which has allowed tuition to increase at an alarming rate. This phenomenon has a name: the Bennett Hypothesis, coined by former Secretary of Education William Bennett. Scholarly work has found that the hypothesis has statistical support. Ironically (and unsurprisingly), in an attempt to make college more affordable, increased federal intervention has produced exactly the opposite effect.

And tuition increases are not the only downside of federal funding of higher education. As might be expected, federal funding comes with strings attached.

To access federal funding through federal student loans, colleges must be accredited by a private accrediting body which is in turn approved by the Secretary of Education and whose standards for accreditation are largely dictated by federal regulations (34 CFR 602). Most of the standards are neutral and ensure basic good governance and competency. However, some standards reference the educational community in general and essentially ensure that common practice becomes a mandatory requirement.

Consider, ironically, the Northwest Commission on Colleges and Universities’ “Academic Freedom” requirement that “Faculty and students are free to examine and test all knowledge appropriate to their discipline or area of major study as judged by the academic/educational community in general.”  Now consider a religious university whose psychology department wants to teach students how to help future clients overcome their unwanted homosexual feelings. Because homosexuality is no longer considered a mental illness by the American Psychological Association and therefore instruction on helping individuals change homosexuality is frowned upon by the APA, this could be considered outside “knowledge appropriate to their discipline” as judged by the “academic/educational community in general” and a psychology department teaching this could risk losing accreditation. In other words, access to federal funding comes at the price of limiting academic inquiry to what is commonly accepted.

Hillsdale College was so incensed by federal incursion into its internal affairs triggered by acceptance of federal funding (the Department of Health, Education, and Welfare wanted Hillsdale to tally students by race which Hillsdale found offensive to its commitment to racial neutrality) that it now refuses to allow students to accept federal money to finance tuition at all. Most universities, however, have been unwilling to part with the possibility of large amounts of dependably available federal cash and have welcomed federal funding and the intrusions that come with it.

The federal government further interferes with internal affairs of colleges through research contracts. The federal government finances more than $30 billion of research at universities. These research contracts subject universities to the jurisdiction of the Office of Federal Contracts Compliance Programs which then becomes intimately involved in hiring and pay procedures in the name of preventing discrimination.

In sum, federal funding of higher education has created gross market distortions which have made college less affordable and encouraged students to take on large amounts of debt, and has also limited academic freedom and interfered with internal governance of universities.

Stating the obvious, all of this is another gift from Uncle Sam that we could do without.