Part 2 in 2-part series–read Part 1 about the Student Debt bubble here.
Student debt has surpassed credit card and auto loans, as the cost of tuition continues to rise.
One big reason student debt is rising is the cost of tuition, a trend economists don’t expect to reverse anytime soon.
According to the Bureau of Labor Statistics, college tuition costs 559% more than it did in 1985. So while consumer goods have doubled and health care costs tripled, college tuition has nearly sextupled. Why the discrepancy?
The answer is not totally clean-cut, and neither is the solution.
It’s important to know that tuition doesn’t reflect the actual cost of a year in college but is formulated instead from an array of factors.
Higher education is heavily subsidized by state and private funding, which brings tuition down. According to a 2002 FinAid research report, tuition increases are most affected by expenses like institutional support, research, faculty, and need- or merit-based discounts for students.
Ronald Ehrenberg, professor of Industrial and Labor Relations and Economics at Cornell University, points to one cause of rising costs being pressure for schools to compete for the most talented students who in turn value the best faculty, research facilities, and instructional technology.
Federal funding for education has decreased steadily while schools spend more to stay competitive.
“To look better than their competitors, the institutions wind up in an arms race of spending,” he said, instead of, “increasing efficiency, reducing costs, or reallocating funds.”
Meanwhile, grants and subsidies have decreased markedly over time, transferring the cost of tuition to students.
Educational appropriations in the budget have vacillated with the boom and busts of the national economy, according to research by the State Higher Education Executive Officers. Since higher education falls under the category of discretionary spending, it is targeted for cuts when the economy is strained, says New York Times Economics Reporter Catherine Rampell, but then is never fully replenished in boom times.
“Today a federal Pell Grant covers only about one-third of what it costs for a public four-year college in state,” says Lauren Asher, president of The Institute for College Access and Success in California. “In the 1980s it covered about half; in the 1970s it covered more than 70 percent.”
Mary Wardell is a multimedia journalism major at NMU and an intern at Great Lakes Radio, Inc.