College Education Bubble: Government Subsidies Raise College Tuition Prices

by | Sep 18, 2015 | Education

By making it so easy for students to gain loans, colleges are free to raise their tuition year after year.

Let’s be real. College student loans are sold as a way to help students pay the high cost of tuition. They’re nothing of the sort.

Individuals, in a private marketplace for education, already have a method to pay for college tuition. It’s called saving. It’s also called competition, among various colleges in a free market, that is.

People won’t save for college. Some do, but most do not. To be fair, many cannot save, because the government is so busy taxing and regulating the upper half of economic earners that fewer jobs are created than otherwise would be the case. Government takes from those who have to give to those who don’t have—or who will not—and does a damn poor job of it, as it turns out.

For years now, America has been stalled at either zero growth or barely 1 percent growth. In happier times, we could expect 4 percent growth in the economy, per year. In a totally unfettered free market, we’d probably enjoy 8 or 10 percent growth per year. Our interventionist government won’t permit an unfettered free market, so it’s no wonder that it’s so hard for so many people to save for college given the general lack of vibrancy in the economy.

Another problem is that the college student loan program is evolving into a college tuition subsidy program. Obama, in particular, has been in favor of making it easier and easier for people to get loans for college. His is a program to make college tuition as close to ‘free’ as possible. Who does this benefit most? Colleges themselves. By making it so easy for students to gain loans, colleges are free to raise their tuition year after year. That’s why we have college inflation higher than inflation in the rest of the economy.

Imagine if government instituted a ‘gasoline loan program.’ Everybody would be eligible to have loans of several thousand dollars per year to pay for gas. This would make it easier for people to buy all the gasoline they needed, and then some. Happier customers more able to spend is a good thing for politicians in both parties, but it would also be a good thing for the gas and oil companies. Why? Because they could raise their prices.

Remember, there are no restraints on colleges for what they set as tuition fees. Nor should there be. But colleges are not operating in a truly free market. Colleges are getting the advantages of a free market—determining their own tuition rates—while less of the responsibility, because a third party is picking up or relaxing the strain of paying the cost.

Sooner or later it had to come to this, even if an outright socialist had not been elected President. Obama is an outright socialist, and he wants everyone to have the cheapest college tuition possible. He views college as a right, just as he views everything else that’s a commodity, a service or a product as a right. People should not have to work for it, according to socialists. It should be given to them.

But if that were really true, then we should just get rid of college tuition altogether. Colleges should not be allowed to make a profit. If college is really a right, we shouldn’t tinker around the edges and make college cheaper and cheaper via government policy. We should simply ask the government to command that colleges provide that right to students. Politicians won’t go this far, of course, because they need constituents and interest groups. Academia, while there are heroic exceptions here and there, is the most powerful and vocal spokesperson for all things leftist and socialist in American society. You had better believe they will not see any cost controls, or cuts in student loans, coming any time soon.

What about the students and families being stretched to the limit with increasing college tuition? The reason they’re paying so much is precisely because of the college student loan program. It’s no different from health insurance and Medicare—another third-party payer concept—driving up the cost of health care. Education is, and should be, a high value. Like health care, it would be expensive even in a free market. But there would be competition and fairness across the board, if government simply stayed out and let the market—i.e., supply and demand among customers and suppliers—determine the outcome. Kind of like cell phones, smart phones and computers, where the market has done a very fine job. Are these products free? Does government provide loans and subsidies so everyone can buy them? No. But supply, demand and freedom of competition have given people choices and made these products possible to just about everybody who wants them. College is going in the opposite direction. It’s getting scarcer all the time. Once tuition is $100,000 a year, even at state colleges, then almost nobody will be going to college.

I’m realistic. I know there is absolutely no chance that politicians, of either party, will stop the gravy train that college student loan guarantees and indirect subsidies have become. That leaves only one option. A crash and burn for the whole system. Tuition inflation will continue, just as it has for decades under college student loans. Obama’s plan will accelerate the process.

For many colleges, especially the ones promoting all the big-spending, big-borrowing policies that are devouring us all, it will be well-deserved. In actual daily life, young people and their families are going to have to find new ways to approach and finance higher education. We need, perhaps, a ‘black market’ underground for education to help people learn in contexts where government is not interfering and jacking up the cost of education. It will have to be a social and psychological or philosophical change, at its root. People will have to let go of the idea that ‘It’s Harvard or bust,’ or ‘University X or bust,’ because government inflationary policies simply won’t permit it, not for most people.

One thing is for sure. Government is not going to solve the problem of high tuition costs. Under government interference, college tuition has only gone up and up and up. Under the proposals now being thrust upon us by the President and Congress, they’re only going to go higher.

Colleges sit back and enjoy the assurance of permanent business. With an economy growing at 1 percent or less a year, and the government relying more on borrowed ‘theoretical’ money to finance the ever-exploding demand for ever-more government services, it will be interesting to see how well this works out for them, in the end.

Dr. Michael Hurd is a psychotherapist, columnist and author of "Bad Therapy, Good Therapy (And How to Tell the Difference)" and "Grow Up America!" Visit his website at:

The views expressed above represent those of the author and do not necessarily represent the views of the editors and publishers of Capitalism Magazine. Capitalism Magazine sometimes publishes articles we disagree with because we think the article provides information, or a contrasting point of view, that may be of value to our readers.

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