College Tuition

This is a topic that I have been thinking about recently and heard Peter Schiff make a brief comment in passing on a fox news show.
"The government is in the job of making college expensive so that people have to go deep into debt to afford the experience. If it wasn't for the government, college would be very affordable."
With a HUGE percentage of college students receiving some form of federal financial aid, state schools are able to have outrageous tuition prices. This distorts the natural market for college education on too many levels.
First, college educations are overly encouraged. Too many people are college educated and do not have any need for the $40,000 art/journalism/social science degrees that they come out with. These people wasted 4 years of the prime of their life contributing nearly zero to our economy. There are normal jobs that now require a college degree due just because there are too many people out there with these accolades. That drives people like me to feel the need to get a degree. Why is it that in the past 10 to 15 years people are now saying, "it doesn't really matter what you get, you just need to get a degree"? What the heck is that about? That is a waste of everybody's time. We can all agree that there are millions of jobs that should not require a degree. The government's involvement in funding college educations has messed up the natural balance of people with degrees and jobs that should require a degree.
Secondly, the government's involvement in funding college education has disrupted the price. it shouldn't be up to the government to determine how much we should value a college education. We pay far too much for the quality of education we receive.
This push for college education has only decreased the quality of our educations. We are mass producing these degrees and they mean less and less each year. These days, a college education seems to be worth about as much as a high school education was 30 or 40 years ago, students just come out 4 years older and a whole lot more progressive.
Our college system is jacked up. State schools need to be privatized and actually start making money apart from taxes and corporate sponsors.
I am still trying to process what is actually happening in this mess, but one thing that is constant across the board: whatever the government lays hands on turns to crap.
I'd love to hear what people think about the ill effects of federal financial aid, hopefully exposing some insight on some of the broader economic policy issues.

Here is the deal: College is sometimes worth it and sometimes not. If we mess with the costs of college to make it easier for people to go, it will have a few unintended consequences. For one, the price has been driven up. For two, people have different variables to work with when deciding whether or not to go to college. Consequently, tax-payer money will be wasted and the entire reason for the subsidy (to make college more affordable) will be defeated by the rising costs caused by subsidation.

The argument could be made that most people would be more beneficial to society if they worked for the four years instead of going to college. The argument could also be made that college makes workers so much more valuable, that society is better off having almost everyone go to college. The truth of the matter, is that some people will be more productive with college than without and vice versa. Who can determine what is worth it for each individual? The individual. Luckily, we still live in a country where people have the freedom to choose college or not. The important part of this is allowing a system to arise that allows customers to make the decision of whether or not they go to college in an environment that accurately reflects the actual cost of college. Without free market pricing, why would we expect people to make a choice that accurately accounts for the total costs and total benefits of college, home-buying, or anything else?

The changes made due to the interference from the government distort the tuitions, available credit options, etc. Since prices and available financing indicate the cost to the consumer, artificially shifting those costs and financing options naturally create an environment in which consumers make a decision that is best for themselves without regard to the added cost that has been carried by the rest of society. This is the reason that subsidies lead to higher prices.

One example: If I can pay $20,000 for a four year degree that might allow me a pay bump of 3-5% when I start my career, I can take into account what I have to sacrifice in order to get the benefit of the 3-5% bump in pay. I will take into account my preferences and make a decision between going to school and starting work immediately. Now, if I have half of my cost paid for by the government and the remainder of my tuition is interest deferred and at 3% interest following my graduation, my incentives have changed significantly. I will be more likely to go to college, because my cost will be lower. What is missing is the fact that tax-payer money is being spent in the grants and in the super cheap financing. Since I do not make my decisions based on the costs and benefits to the tax-payer, but instead of my own costs and benefits, the costs incurred by the taxpayer are left unaccounted for.

Another example: I want to buy a house. The best rate that I can find is an 8% interest rate on a 30 year fixed mortgage. The lender offering me this rate at 8%, also requires that I put 20% down. For one, I can't afford 20% down and for two, I can't afford the payments on a 30 year mortgage at 8% for the house that I want to buy. Wouldn't it be beneficial for society as a whole to find programs that would allow me to own a house? If I meet standards that the government makes up, I can get a subsidized loan at 6% and I only have to bring 5% down. Now, I can buy the house that I want. When considering my options, I take into account the payment and terms and the government loan is much better for me. Why was the market rate for lending me money around 8%? Because of the time preference on the money lent, the risk that I won't pay the loan back, and other factors that consider risks vs. benefits, people were not willing to loan me money at less than 8%. The private lenders did not find value unless the rate was above 8%. Now, the government has funded a loan for me at 6%. This means that the government was willing to take more risk for their money for less of a return than the private market. Are any of the factors different regarding the risks of the loan? Not really. Why would the government be willing to have lower lending standards than that of the lowest standards of the market? Unfortunately, the government has done two things: #1. Put taxpayer money at risk and will lose money long term. #2. Began the process that will cause price gains in the housing market (as explained in my previous post). So, not only is the government putting taxpayer money in serious risk, but they are also failing to accomplish their initial goal: To make housing more affordable. What are the key consequences of subsidiies? Higher prices, taxpayer money invested wastefully, growing government, creation of malinvestment, and a price structure and business models that are based on unnatural and unsustainable market conditions.

All in all: Individuals make choices, society doesn't. Since choices are made at an individual level, it is counterproductive to distort the costs/benefits to the individuals by sharing the costs/benefits with society. We cannot change the fact that individuals have free will and are able to choose for themselves. When we distort the incentives and costs for anything, people will make choices that they would not make if they were solely responsible for the cost and the benefit that is reaped. This is a further reason that people should bear their own costs and reap their own benefits. A couple of examples: The income tax and subsidized health care. The income tax makes it less worth it to work. Subsidzed health care creates an environment, in which people usually are less careful with their health care costs.