What would happen if the US cut student tuition reimbursement?
May 17, 2014 6:59 AM   Subscribe

I've recently been on a kick reading about the current problems in higher education – tuition rising while state funding to universities decreases, large student debt, enrollments down, increased use of contingent faculty to control costs, increased spending on amenities, etc. What would happen if the federal subsidies were suddenly removed?

One commonly suggested fix for the problems in higher ed is that, if the subsidies programs for higher education created a bubble by enabling more borrowing through federal programs (like Stafford loans and Pell Grants) and therefore inflating tuition, dismantling the subsidies program entirely or drastically reducing its reach would (eventually) mend the system.

I'm curious what the immediate and long-term affects of such a policy would be. I assume if students lost access to these loans enrollment rates would drop precipitously overnight. What percentage would be plausible? 20%? 40%? How long would it take, theoretically, for the "bubble" to disappear and universities to begin cutting amenities and other non-essentials to lower their operating costs? And, assuming this is even an effective policy, what would universities and students have to do during the messy interim period to keep afloat? At the end of it all, what would the US university population look like? How many colleges and universities would have to close their doors?

I have no particular ideological bent to this, I'm just having a hard time finding good, well-reasoned sources from experts on what this rather extreme solution would entail.
posted by deathpanels to Education (11 answers total) 7 users marked this as a favorite
Here (pdf) is a chart showing Pell Grant funding from 1976 to 2010. Here is a table showing annual Stafford Loan limits from 1967 to today. Pell Grant funding has been going down in that time span, and Stafford Loan limits are not keeping up with inflation, so under your theory you would also see tuition costs going down, right?

When we completely dismantle affordable education, what we will have is a very cheap labor force, an educated wealthy class, and a less-educated everyone-else class, and we'll be getting even closer to having only 2 classes.
posted by Houstonian at 7:16 AM on May 17, 2014 [4 favorites]

Pell grants cover a much, much smaller portion of college costs than they used to. Private loans for tuition were uncommon in my experience when I was in college in the 80s; now they seem to be everywhere. I don't think your premise is sound.
posted by rtha at 7:20 AM on May 17, 2014 [1 favorite]

Aren't plus loans what's filled in a big part of the gap? Anyway the conservative view that federal loan guarantees form a distortion that pushes prices of education upwards is predicated on the idea that there is a rational supply and demand market underlying the price of Tertiary education. The evidence from something like healthcare would seem to suggest that may not be true.
posted by JPD at 7:28 AM on May 17, 2014 [2 favorites]

There is now some evidence that federal aid does cause tuition prices to go up, especially in the for-profit college sector. If you cut federal student aid overnight, then I think you would see for-profit colleges disappear overnight, since they get about 90% of their income from federal student loans and grants. And that would be a good thing.

For public and nonprofit schools, I think you'd see immediate shut-downs as well. The problem is not so much that schools spend too much, but that state funding has dried up. So it's not like they could suddenly find other sources of revenue, and it would be hard to adjust their budgets that rapidly to losing such a huge chunk of their income.

A lot of people think that the rise of public school tuition was caused by luxury amenities like rock-climbing walls and new dorms -- but it's really due to the cut in state funding and increase in administrative costs (some of which is driven by regulatory compliance needs and expected student services). So it's not just a matter of stopping spending on "luxuries," but cutting out student services, administration, etc, plus making up for the lost state funding.
posted by yarly at 8:49 AM on May 17, 2014 [4 favorites]

The other source of funding for universities that has been declining is federal defense spending on R&D, which used to make up a huge chunk of higher education budgets. And it wasn't just for science and technology--it included foreign languages and the social sciences too. In fact, defense spending through colleges and universities was so large in the 1960's that one could argue all other changes in higher education funding and tuition since are due to this single factor.

Unfortunately, I'm struggling to find a citation for you right now...
posted by postel's law at 9:41 AM on May 17, 2014

How would that possibly work unless federal and state spending, going directly to public universities and colleges, was suddenly returned to it's former levels?

It costs a lot of money to run a college. If the government paid the schools directly, there would be a more financially efficient system that didn't rely on the enormous numbers of "middle men" who administrate the vast loan system now in place. It would be overall cheaper for us and the government if our taxes went more directly to the schools, rather than a vast infrastructure dedicated to getting us to take out loans and then spending dozens of years per loan holder, extracting payment for those loans.

Oh well, neoliberalism.
posted by latkes at 10:07 AM on May 17, 2014 [1 favorite]

I'd argue the intersection of for profit ed and government loan subsides stands outside of there traditional post secondary ed world. Clearly in the for profit world there is a clear relationship between loan supply and demand for service.

But the evidence is that the cohort for traditional ed is different.
posted by JPD at 10:23 AM on May 17, 2014

...and increase in administrative costs (some of which is driven by regulatory compliance needs and expected student services).

Some of the increase in bureaucracy is caused by that, but a lot of it is simply due to the fact that administrators make work for each other. I cite Parkinson's Law. If you don't keep a tight leash on a bureaucracy it will naturally grow about 3% per year, compounded, unrelated to any work it must do.

During the fat years, no one at universities was worrying about that, and now at most universities there are more administrators than there are instructors.
posted by Chocolate Pickle at 11:08 AM on May 17, 2014

I assume if students lost access to these loans enrollment rates would drop precipitously overnight.

What would happen is the private sector would rush-in with their own loan products. Your comment seems to have at its root a belief that a large number of kids going to college are doing so for grins and giggles, and not to prepare themselves for a career. It's not unlike the idea neocons like to trot-out that Americans use their healthcare too much.

As crippling as student loan debt is now, I can't see how handing it over entirely to the private sector would improve anything.
posted by Thorzdad at 1:01 PM on May 17, 2014

If you really want to dry up student loans, change the law so that students can discharge their debt through bankruptcy. Currently they can not (or not easily), which means that it's a relatively risk-free loan for banks and other private lenders.

If students could discharge debt through bankruptcy (perhaps after ten years), then banks and lenders would start requiring collateral and/or co-signers, and a lot fewer students would qualify for loans.
posted by Chocolate Pickle at 1:55 PM on May 17, 2014 [2 favorites]

Health Care and Higher Education are both "labor intensive." "Productivity" doesn't improve as quickly in those areas as it does in many areas of the economy. As a result, the relative cost of education compared to the overall basket of goods and services grows. Surprise, their costs grow faster than the rate of inflation.

But wait, there is more, education and health care also interdependent. Professors need health care, and doctors and nurses need to be taught. So, we have two things whose costs are going to grow faster than inflation anyway AND each is a major input for the other. Hmmm, how does that work out?

This wouldn't be such a big deal if overall productivity increases were well distributed. They aren't, they are accumulating in the wealthiest members of the population, and they are using that wealth to become even wealthier.

One way they are doing that is by using their disproportionate political power to gain disproportionate influence, which they are using to gain even more disproportionate influence. Among the things they've done with that disproportionate influence is gut state and federal support for higher education, and, for that matter, for K-12 education.

So, no, the idea that eliminating even more support for education would somehow change any of the major structural issues in our economic and political systems is completely ridiculous.

Another thing that is completely ridiculous is that education (or health care) can ever be efficient markets. Efficient markets require equality of information between suppliers and consumers. If that were at all possible in the education market, there would be no education market. As for health care, consumers will never have anything approaching the knowledge of the suppliers. Moreover, both education and health care are about people's futures, and the futures of their loved ones, and as such, it is batshit crazy to think that consumers are going to consistently approximate rational actors.
posted by Good Brain at 6:26 PM on May 17, 2014 [1 favorite]

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