Guest Blog: Subsidizing Inefficiency

by Charles Miller

Note: the following is a special guest blog post

In his very well written and argued piece about "Why The Student Protesters Are Wrong" in Minding the Campus, Daniel Bennett makes one statement which I think misses the mark and reduces the argument he is making unless corrected:

"The widespread availability of cheap loans has increased the ability of students to pay for college, and the colleges have gladly used this additional money to propel their arms race, passing the extra costs on to students with the means to pay."

The first part of this statement is the crux of the argument, with which I agree. However, colleges have not necessarily "passed the extra costs on to students with the means pay", at least not entirely.

At the same time tuition and general operating costs have risen in real terms over two or more decades, the amount of merit based aid was one of the fastest growing line items in the financial statements of colleges, with much of that merit aid going to students who already had some ability to pay and not to students who needed the aid in the ordinary use of that term. That subsidy in the form of aid came from government (taxpayers directly), private contributors (taxpayers and the wealthy through tax incentives) and endowment and other earnings(taxpayers again). Because, of course, even wealthy and middle class families got subsidized loans and other tax incentives, as well as direct merit aid.

Finally, public colleges generally were held to price controlled tuition levels which essentially subsidized students who could afford more, putting more burden on state finances to make up the operating deficit and either limiting the amount of state funds directed to students with real financial needs or reducing the quality of the education, or both.

The main point is that the taxpayer generally ends up paying for these bad public policies, whether in the sub prime mortgage bubble or the tuition bubble. Those with high income or who are wealthier also end up paying indirectly as well because of the damage to the whole economic system, but not usually directly as in college payments.

Of course, if wealthy students pay a price for college higher than they should because of the weak productivity of the academy, it's no different than most other government enterprises such as public education and much of the health care system. But as least they are able to pay (the subsidy for inefficiency) for a pass to a better life existence. Many others cannot. Thus, we have education being a barrier rather than an enhancement to opportunity.

In general, I agree that the students may be protesting against the wrong target, but I also have to wonder what the average family income is for many of those protesters.