The Unseen Causes of Rising Tuition Rates

As the great French economist Frederic Bastiat once said:

I originally wrote this article for RevoluTimes on November 10, 2011

“Socialism, like the ancient ideas from which it springs, confuses the distinction between government and society. As a result of this, every time we object to a thing being done by government, the socialists conclude that we object to its being done at all.”

This is precisely the reaction given to Congressman Ron Paul’s proposal to eventually phase out student loan programs offered by the government. While Paul has stressed that his budget plan does not seek to actively eliminate federal student loans anytime soon, he does concede that this is the ultimate goal.

The words had hardly rolled off his tongue before the media blitz began. From CNN to NBC to various websites, the headlines were filled with claims that Paul sought to deprive the masses of a sound education. Paul addresses these claims here.

But perhaps the most outrageous (and horribly misinformed) article came from a site in which the author claims that education is a “human right, not a product.” Such thinking is unfortunately becoming common place among today’s youth as an entire generation has been raised under the pretense of entitlement. The author continues by stating:

“…the problem here is not who is doing the lending, but that such sums of money must be lent to young students at all. Many young people cannot possibly fathom the magnitude of debt they are accruing to obtain a degree that is fast becoming, let’s face it, more and more useless every year…We need to make university education more affordable. It should not put both young and old students into debt which they then spend a lifetime attempting to pay down.”

This is what Bastiat referred to as “What is Seen and What is Unseen.” As Bastiat explains, the sound economist does not only evaluate what is seen from government policy on a particular part of society, but must consider the effects that are not seen and how it affects society as a whole.

The concerns of Paul’s critics and many others who are desperately seeking to pay down their student loan debt are justified in their indignation at the skyrocketing cost of college tuition; however they’re condemning the symptom of the problem rather than addressing the root cause.

As Congressman Paul and many economists have demonstrated, prior to the government’s interference in the education market, tuition costs were much lower and the quality of education much higher. For many college students in the 1960s, tuition rates were low enough that working a summer job would pay for college and enable the student to graduate without facing a heavy burden of debt. Today, the total amount of money owed in U.S. student loans is over $1 trillion; that’s more than the total U.S. credit card debt!

It seems reasonable enough to most people to blame the universities and claim it’s due to a capitalist system based on greedy universities only seeking to make a profit. If only this were true. There are two key factors however, that are not acknowledged by many college students and much of the American public.

The first is the direct correlation between government subsidies and rising prices. Prior to government issuing of student loans, colleges and universities were forced to operate within the market and cater to the interests of students that resulted in lower tuition rates and a higher standard of education. To those who claim this wouldn’t occur, they need only direct their attention to products such as cell phones and computers. Such industries that are mostly unregulated and left to the markets (especially compared to services like education and healthcare) continue to drop in price as the quality of their products increase.

Once the government intervenes in the market via student loans, universities no longer face market pressures to provide the most affordable education because their funding comes from the State (and the government has no limit to its resources-taxation). As all human action is based on self-interest, it’s to be expected that by eliminating the forces of the market and securing endless funding for universities, these institutions will seek to take advantage of the government’s meddling at the expense of the public.

The second factor is inflation. Just as the price of gasoline has risen dramatically over the last few decades, so too have other goods and services. As government expenditures vastly outweigh tax revenue, money is printed to cover the shortfall. This mass printing of currency decreases the purchasing power of the money already in circulation, wiping out the middle class as wealth is transferred to the wealthy and politically-connected.

The artificially high costs of college tuition are one of many examples of unintended consequences from government interference in the market and the lack of a sound currency. Without market forces, businesses and institutions are given the power to manipulate and exploit the consumer. Just as the Obama administration claimed to be fighting the insurance companies with its healthcare mandate, only to further entrench the power of the insurance companies by forcing those who would normally not seek health insurance to purchase it, the efforts to allegedly empower those seeking higher education has in fact stolen their power of influence over the market and left them in a state of indentured servitude.  If only the busy bodies in Washington were being graded on their performance, they would have flunked out a long time ago