How Government Subsidies Push Up the Cost of Education.

In an interview with the Wall Street Journal, Richard Vedder outlined what he sees as the reason for the parabolic increases in the cost of higher education. The article runs to 4,300 words. I have set out what I see as the main points below. While I think there is merit in the bulk of his argument, I am not convinced that online courses are the solution :

Rising costs
In 1964, federal student aid was a mere $231million. By 1981 it was $7billion in student loans alone. This amount doubled in the 1980’s and tripled in each of the following decades and is now $105billion. Taxpayers now stand behind nearly $1trillion in student loans.

Many colleges are using federal largess to finance Hilton-like dorms and Club Med amenites. Stanford offers more classes in yoga than in Shakespeare. Princeton built a $136million student residence with leaded glass windows and a cavernous oak dining hall (funded by a $30million tax—deductible donation from Hewlett Packard). The dorm cost about $300,000 per bed.

“Universities are in the housing business, the entertainment business, in the lodging business, in the food business. Hell, my university runs a travel agency which ordinary people off the street can use.”

Some college officials are also compensated more handsomely than CEOs. Since 2000, NY University has provided $90million in loans, many of them zero interest and forgivable, to administrators and faculty to buy houses and summer homes on Fire Island and the Hamptons.

Ohio State University paid President Gordon Gee $2million last year while also providing him a 9,630 square foot Tudor mansion on a 1.3 hectare estate. It includes a $532 shower curtain in a guest bathroom. They also paid $23,000 per month for Mr. Gee’s soirees and half a million for him to travel the country in a private jet.

Low income earners can’t get in.
Today about 7% of recent college grads come from the bottom income quartile compared with 12% in 1970 when federal aid was scarce. Government subsidies are not making college more accessible. They have not improved outcomes or graduation rates.

Degrees not needed
30% of the adult population has college degrees. The Department of Labor tells us that only 20% or so of jobs require a college degree. Why are we encouraging more kids to go to college?

The average student loan debt is $26,000 but many graduates, especially those with professional degrees have six-figure debts.

The Department of Education has been littered with demonstration projects, innovation projects, proposals for new ways to do things for decades and there is nothing to show for it.

Innovation is being driven by entrepreneurs like Stanford computer science prof Sebastian Thrun, who founded the for profit company Udacity that offers ‘massive open online courses (MOOCs). Mr Thrun began teaching AI at Stanford and then at Udacity. 200,000 people signed up for the course.

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