When Hillary Clinton unveiled her plan to slow the growth of student-loan debt around the country, most conservatives could be heard uttering an audible groan because we understood an eternal truth that Clinton is apparently unaware of. Namely, the easier it becomes to get money for a particular good or service, the higher the price of that good or service rises. It’s a basic economic principle that we’ve seen happen again and again in recent years. The housing bubble, the rising cost of healthcare — and the college tuition spike.
Into this steps brilliant businessman Mark Cuban, who could hardly be considered a conservative, to explain why Hillary Clinton’s plan is likely to have the opposite effect of the one she is hoping to accomplish. Cuban took to his Cyber Dust app last week to tell his followers why he was panning Clinton’s idea:
[Hillary’s plan] stands a better chance of increasing the amount of money students owe than decreasing it. Just as easy money led to the real estate bubble a few years ago, the easier it is to borrow money for college the easier it is for colleges to raise tuition. Tuition keeps going up because no matter how high they raise it, students can still borrow more to pay for it.
A recent study by the Federal Reserve Bank of New York came to the same conclusion that Cuban is alluding to in his comments.
Easy credit has been the enabler in encouraging tuition increases and ever-bigger college loans, the study found, much the same way that easier mortgage credit caused home prices to skyrocket as borrowers took on debt they couldn’t possibly repay. For every additional $100 in government loans to students, colleges raised tuition $65, the Fed found. A 2012 study on for-profit colleges found they raised tuition to maximize student aid,
The same study also found that while easier money forces prices up, it doesn’t actually increase enrollment. That means that the kids who are supposed to be benefitting most from the easy money aren’t actually taking advantage of it.
The researchers found that each additional dollar of Pell Grant or subsidized student loan money translates to a tuition jump of 55 or 65 cents, respectively. Of course, the higher tuition also applies to students who don’t receive federal aid, making college less affordable across the board.
Even worse, the colleges that are most affected by the increases in funding from federal loans increase their tuition disproportionately in comparison to other schools.
We find that institutions more exposed to changes in the subsidized federal loan program increased their tuition disproportionately around these policy changes, with a sizable pass-through effect on tuition of about 65%. We also find that Pell Grant aid and the unsubsidized federal loan program have pass-through effects on tuition, although these are economically and statistically not as strong.
Needless to say, the evidence is clear. The liberal “solution” to rising education costs would actually make the problem dramatically worse. The only way to fix the rising cost of going to college is by making the loan process more difficult. Yes, I know that this means we are opening ourselves up to attack from liberals about how we must “hate” the poor — but the fact is that easy money doesn’t mean more kids going to school, it just means more kids ending up in debt.
Any way you slice it, Hillary Clinton’s and Bernie Sanders’s plans for “fixing” rising tuition costs is a loser.
Cross-posted at Eagle Rising