This morning I listened to Peter Robinson's Uncommon Knowledge podcast. He interviewed Andrew Ferguson, editor of the Weekly Standard and author of the book Crazy U. During the interview Ferguson talks about what he has learned about the state of college education in America as his son went through the application and matriculation process.
At one point Robinson asked Ferguson why colleges charge so much for their product. Ferguson said that when he went to Occidental College in the 1970s the tuition was $16,000 per year in today's dollars, and today the tuition is over $40,000. How can they do that when the United States has what is supposed to be a free market economy?
Ferguson said that he asked an expert this question, and the expert said that colleges keep raising their prices because they can. Parents have bought the idea that their children must attend the best possible name-brand school to be successful in life, and therefore they are willing to pay any price. He mentioned the fact that the government subsidizes education through grants and loans, but only in passing.
I found this answer less than satisfying. Ferguson has underestimated the effect of the federal government handing each student a blank check to use to pay the school. Colleges can raise the tuition because the federal government will loan the student and his parents an arbitrary amount to pay for school. Of course, it's not just a blank check. There are strings attached, and 22 year olds regularly graduate (or worse, fail to graduate) with student loan debt that exceeds the size of a mortgage on one's first home.
The first step toward a free market in higher education is to end the federal subsidy of the student loan programs. With less money chasing the existing supply of college education, prices will fall because of the interplay between supply and demand. Furthermore, the federal government needs to cut spending anyway because it is spending far more than it takes in through taxes. Ending federal student loans will therefore address two pressing problems facing Americans -- the soaring cost of college and overspending on the part of the federal government.