Crushing student debt. Underemployment. Rising student-loan defaults.
These are just some of the harsh realities that an increasing number of graduates face in the United States.
It is no secret that higher-education costs have risen dramatically over the past few decades. A study conducted by the National Bureau of Education Research (NBER) discovered that average net tuition rose 106 percent from 1987 to 2010, and that's accounting for inflation.
In light of all this, what have policymakers proposed as a solution?
Doing his best Donald Trump impression, Senator Bernie Sanders (I-VT) argues that providing “free” university education to Americans is what will truly make America great. Taxpayer-funded university education was one of the pillars of Sanders’s presidential campaign, and he has continued this crusade by recently introducing the College for All Act.
But is making education “free” through legislation viable?
While the intentions of making education "free" may be noble, they are based on flimsy economic premises. First, there is no such thing as a free lunch, given that education, no matter what “free-education” advocates say, is an economic good and someone ultimately has to pay for it, be they the consumers or third parties such as taxpayers.
Mandating that something be free does not guarantee that the service will be of high quality. When legislative fiat completely removes the profit motive from the equation, the incentive to innovate and improve said service is stifled. Administrators then serve state officials, who deliver the funds, rather than the consumers, the students.
American universities are the best in the world in large part due to the presence of many that behave more like businesses that offer services. That is in contrast to institutions whose services are treated as "social rights" with prohibitions on profits.
The cold, hard truth is that the higher-education cost problem cannot be solved through more government intervention. The government’s policy of guaranteeing and subsidizing student loans has created an artificial demand for higher education. In turn, many universities have taken advantage of this increased demand by increasing tuition rates. Thanks to these perverse incentives, universities have funneled money into bloated, administrative bureaucracies while ignoring the classroom.
The more the government subsidizes a certain a good or service — with guaranteed student loans in this case — the more expensive the good or service will become due to the increased demand. The result is a more bureaucratic university environment, higher student debt, and a reduction in the overall education quality.
Free-market solutions are the answer to this dilemma. Through the elimination of subsidies, college prices would come back down to normal levels and become affordable for prospective students. In addition, reducing barriers to entry would make the higher-education sector more dynamic and competitive. Such an environment would enable innovative services such as Coursera to enter the accredited university system and provide more affordable forms of higher education.
Once you see through the feel-good rhetoric, one cannot help but see that the free market is the best way to ensure high-quality and affordable education for our nation’s best and brightest.
Image: Joe Brusky.