[David Stockman’s Note: This Wednesday, I’m streaming a live video broadcast from my home in Aspen, CO. I believe the most popular investment of the 21st century is about to implode. The collapse of this $3 trillion bubble could be the “final nail: in your retirement if you’re unprepared. But, if you invest in a discreet alternative investment right now your savings could be spared… and you could actually make up to 300% by July. That’s why I’m hosting this live video training from my home. I’ll lay out all of these details and more for you. All you need to do is RSVP right here before your spot is taken. There’s nothing to buy in order to get access — it’s free.]
By John Merline at Investor's Business Daily
Bernie Sanders, Hillary Clinton and the rest of the Democratic leadership are constantly complaining that college education costs too much. What they never bother to explain, however, is why.
Two economists set out to do so, and Bernie and company will not like what they found.
Grey Gordon and Aaron Hedlund, economists at Indiana University and the University of Missouri, developed a method to test various explanations for the share rise in tuition costs. Is it state funding cuts? Or the increased wage premium for a college degree? Or is it related to general cost increases in the services industries?
Not exactly. In a working paper published by the National Bureau of Economic Research the economists report that these factors contributed insignificantly to the rapid rise in tuition between 1987 and 2010.
What did account for almost all of it was, ironically enough, the massive explosion in federal aid over the past several decades. Federal aid — in the form of subsidized loans, grants and tax credits — shot up 134% in the past 15 years, according to the College Board. It’s climbed 22% just under President Obama.
Combined with state aid, the government is pouring more than $239 billion a year into programs designed to make college less expensive.
What the authors found is that all this aid money has simply let college administrators spend more and jack up tuition to pay for it, without hurting enrollment. The result is there to see for anyone who visits a college campus these days — gourmet kitchens, luxurious dorms, shiny new administrative buildings, beautiful landscapes, state of the art workout facilities, etc.
The authors call this the “Bennett hypothesis,” after former Education Secretary William Bennett, who wrote in 1987 that “increases in financial aid in recent years have enabled college and universities blithely to raise their tuitions.”
Not only does the increased federal aid lead to higher tuition, the authors found, but it perversely leads to “more debt, and in the absence of higher labor market returns, more loan default inevitably occurs.”
In other words, the Democrats’ plan to provide still greater amounts of federal aid will only make matters worse.
Of course, Bernie Sanders’ answer is to simply make public four-year college “free.” But asAndrew Kelly of the American Enterprise Institute points out, Sanders’ solution won’t make college any cheaper — it will just shift the costs to taxpayers — and it will almost certainly make it harder to enroll.
“Any influx of federal money may lead profligate administrators to spend even more,” he noted recently.
That’s provided colleges can successfully compete against the countless other items in the federal budget.
The more likely outcome, Kelly explains, will be shortages. Free college will greatly expand demand, while doing little or nothing to increase supply.
“And because middle and upper-income students will gobble up many of the free public slots, rationing will hurt those who need access the most,” he notes.
Clearly, then, the solution to fast-rising college costs is not to pour still more federal money into the system.
But who has time for such inconvenient truths when a presidential contender is waiving a banner saying “free stuff.”