How Do We Break the Cycle of Higher Tuition and More Debt?

Daniel Lin,

Release Date
February 18, 2013



College tuitions continue to rise, and students are leaving school with more and more debt. Professor Daniel Lin argues that there are two main causes for increases in college tuition: a rise in demand for a college education and government subsidies. Problematically, government subsidies are supposed to be helping offset college tuition costs. So what should be done?
Professor Lin argues that we should get rid of government subsidies for higher education completely. While subsidies do encourage more students to attend college, many of those students struggle. Two-thirds of students are unable to graduate in four years, and 40 percent of students drop out of college. Those who never finish a degree tend to have significant debt. In addition, many graduate and take jobs they could have had without a college degree. While the average college graduate does earn more than the average high school graduate, not all college graduates earn higher incomes.
While eliminating government subsidies for higher education may cause demand for higher education to decrease, it does not necessarily mean students who cannot afford college would be at a disadvantage in the job market. Many industrial countries have training and apprenticeship programs for high school graduates to prepare them for successful careers. As it stands, government subsidies are contributing to increasing higher education costs. Such a policy, which is worsening the problem it is supposed to fix, should be eliminated.

To view Professor Lin’s data sources, click the following links:
Pathways to Prosperity [report]: A Harvard University report on vocational training and apprenticeship programs
Tuning in to Droppin Out [Article]: As more and more students drop out of four-year universities, we must reevaluate the question, “Is a college degree necessary for everyone?”
Digest of Education Statistics, National Center for Education Statistics [data set]: Set of data on graduation rates of first-time postsecondary students who started as full-time degree-seeking students

1.       An Interview with Neil McCluskey: Student Aid and Fiscal Responsibility Act[Article]: Neil McCluskey of the Cato Institute argues that the government would solve several problems relating to cost and responsibility by reducing the federal aid available for college tuition.
2.       Graph of the Week: Annual Rise in Cost of Attending College vs. Other Large Family Expenditures [Graph]: This graph reveals that the cost of education is not only higher than other costs, but is increasing at a faster rate.
3.       Five Reasons to Skip College [Article]: This Forbes article argues that it might not be crazy to skip a four-year degree program and pursue other avenues to generate an income.
4.       Out of School and Into the Red [Article]: This article and chart take a look at a new way of examining student debt: debt/salary ratio.
5.       Apprenticeships may be Hard to Organize, but They Deliver Return on Investment [Article]: This article touts a career direction that may be more lucrative and less debt-inducing than four-year college programs – the apprenticeship. 

How Do We Break the Cycle of Higher Tuition and More Debt? 
STUDENT 1: I have approximately $60,000 in student debt.

STUDENT 2: I’m feeling little bit of anxiety about it, little bit of—there is going to be a lot of work towards paying that down.
STUDENT 3: It’s pretty overwhelming to have all this debt, trying to plan for the future in general.
PROFESSOR LIN: College tuitions keep rising and rising, leading students to take on more and more debt to get an education. Tuitions have been rising because demand for college has been rising. That demand has been fueled by two things: better prospects for college graduates and government subsidies for higher education, such as government-backed student loans. While the first is a healthy reason for more demand, the second is most definitely not.
Subsidies distort market signals. While their goal is to make college education more affordable for students, in reality they push up tuitions by artificially increasing demand. One way to break this cycle is by ending subsidies. If you worry that cutting subsidies would mean fewer people going to college, you’re right.
Our current system of subsidies may encourage more students to attend college than ever before. However, many of those students struggle. Two-thirds can’t graduate within four years. Forty percent don’t graduate at all. In fact the U.S. has the highest drop-out rate in the industrialized world. And if that’s not bad enough, the people who do graduate don’t necessarily end up with the high-paying jobs they were expecting. While the average college graduate earns more than the average high school graduate, not all college graduates earn higher incomes.
Economist Alex Tabarrok finds a stark example of this. In 2009 there were almost as many psychology majors graduating as the total number of jobs in clinical counseling and school psychology in the whole country. Tabarrok also finds this problem outside of psychology. Half of graduates in the humanities end up in jobs that don’t even require a college degree. That means these students have loaded up on debt to pay higher and higher tuitions just to end up with jobs that pay much less than expected.
That’s what our current system encourages. A more sensible system would not encourage people to spend years in college then drop out, burdened with debt. But if we eliminate subsidies, are we putting poor students at a major disadvantage in the job market? Fortunately, no. Sitting in a college classroom for four years is not the only path to higher earnings.
In other industrialized countries, training and apprenticeship programs are viable options for high school graduates. These programs are often funded by employers who have a vested interest in giving students valuable work skills. It makes sense that students are worried about rising tuition and more debt. But while they looked at government subsidies as a way to cope with these problems, they should realize that subsidies themselves are contributing to the problem. And if a policy is worsening the very problem you’re trying to fix, it’s time to change it.