FEDERAL SUBSIDIES FUEL COLLEGE COSTS

Dr Gross is a professor of economics at Creighton University in Omaha, Nebraska.  He publishes a monthly Economic Trends Newsletter.  I found his comments regarding education costs quite interesting.  Note that at the end he asks at the end of the article if the government is creating another housing type bubble by their legislative actions?  

Federal Subsidies Fuel College Costs  Up 5 Times Inflation Rate

Since 1981, U.S. Bureau of Labor Statistics data show college tuition and fees have soared by 714.3 percent while all other items consumed by the average household increased by a more moderate 141.0 percent.

Reacting to this shocking trend, President Obama, in his State of the Union address, threatened higher educational institutes with sanctions if they continued to boost tuition at this alarming rate. Contrary to the President's rhetoric, the federal government, by increasing federal financial assistance by almost 20 percent since 2009, has been one of the chief culprits allowing colleges to shift a large share of rising costs to the taxpayer.

Moreover, the President boosted the federal "bailout" or subsidization of higher education by: 

1. Allowing borrowers to cap their student loan payments at 10 percent of discretionary income and waiving any loan balance remaining after 20 years.
2. Doubling the number of work-study jobs available.
3. Implementing the American Opportunity Tax Credit which provides up to $10,000 for four years of college. 
4. Asking Congress to subsidize record low student loan interest rates.  

Despite rapidly rising federal support, colleges have increased the share of courses taught by part-time faculty to 49 percent in 2009 from 34 percent in 1981. Furthermore, colleges raised average faculty salaries by a scant 2.7 percent per year over the past six years.  

During this same period of time, the growth rate in outlays for student services (e.g. athletics, counseling) was almost double that of expenditures for instruction.  

Data show that colleges have used federal government support to underwrite a disproportionate growth in funds for non-academic spending and a sharp increase in tuition and fees.There is a strong correlation over time between student and parent loan availability and rapidly rising tuitions.  

Similar to housing, the federal government is putting air in another bubble - this time it is higher education.