Abolish Federal Student Loans, But Don't Expect College Tuition to Fall
AP Photo/Charles Krupa, File
Abolish Federal Student Loans, But Don't Expect College Tuition to Fall
AP Photo/Charles Krupa, File
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Federal loans for college students should be abolished. Period. There’s certain things the feds shouldn't do, and aren't empowered to do. This includes subsidizing education. Don’t shrink lending, just end it.

At the same time, proponents of abolishment should curb their enthusiam. Although there will be many laudatory consequences of the federal government vacating the educational lending space, notably lower tuition costs won’t be one of them.

There’s a tendency for some with a proper aversion to government intervention to assume that getting government out of the student-loan business will result in lower prices. The view seems to be that since government exists as an eager lender to those who want to attend college, that colleges have little incentive to reduce prices. Better yet, if conventional wisdom is to be taken seriously, colleges have a strong incentive to keep hiking tuition. Why not? If government will generously lend toward any degree, why not aggressively raise costs for those backed by a lender that is cost-careless?

It all makes sense at first glance, but really only at first glance. To see why, we need only consider private school tuition at the high school level. If soaring college tuition were truly a consequence of a generous federal government, as opposed to market forces, this would show up in more cost-stable private high school tuition where federal aid isn’t a notable factor. Translated, there would logically have not been a major increase in private school tuition over the decades thanks to a lack of federal involvement. Except that there’s no evidence of anything close to flat tuition on the private, high school level.

Take Loyola High in Los Angeles. Arguably the most prominent Catholic high school in Southern California, Loyola attracts students from all points inside and well outside Los Angeles. Tuition for Loyola in 1988 was in the $2,500 per year range, while today it’s a little bit north of $22,000 annually.

Flintridge Preparatory School is based in La Canada-Flintridge, a town next to Pasadena, CA. While annual tuition in the 1980s was in the $5,000 range, nowadays the annual cost is just a little bit above $39,000. (Full disclosure: I attended both high schools).

To all this, some will understandably and properly reply that anecdote is not statistic. Two private high schools in the Los Angeles area can’t necessarily be used to make a broader, more national point. It’s very true, but the challenge here for anyone reading this is to produce information from elsewhere in the U.S. that disproves the point made. In particular, they’d have to find private schools with headline tuition rates not noticeably different today relative to the 1980s. The speculation here is that they’d have a difficult time.

The main thing is that rising tuitions for private high schools fairly easily disprove the popular view among economic and political pundits that rapidly growing college education costs are a consequence of easy federal lending. This view, as previously mentioned, is appealing at first glance. But at second glance, particularly one that includes a look at private high school tuition costs in the U.S., it’s easy to see that the view is rather simplistic.

So what’s the catalyst for soaring tuition costs on the high school, college, and surely elementary school levels? The speculation here is that scarcity has met with booming economic growth. More and more people have the means to purchase what’s seen as elite. At the same time you can’t multiply a Loyola, or Flintridge, or name your school.

You also can’t multiply what’s viewed as elite on the collegiate level. This is especially interesting when it’s remembered that demand for leafy, majestic U.S. universities is global. While much of the world lived under communism or socialism in the 1980s, by the 2020s a great deal more of the world is economically free. Much more wealth globally chasing what once again can’t be multiplied. There’s only one Stanford for instance, one Harvard, etc.

There’s so much to critique government about, particularly on the federal level. And it once again should not be in the business of student loans. But when pundits routinely argue that college tuition has well outpaced “inflation” because of federal loans, they’re making an argument that doesn’t stand up to either common sense or empirical realities.  

John Tamny is editor of RealClearMarkets, Vice President at FreedomWorks, and a senior economic adviser to Toreador Research and Trading (www.trtadvisors.com). His next book, set for release in March of 2021, is titled When Politicians Panicked: The New Coronavirus, Expert Opinion, and a Tragic Lapse of Reason. Other books by Tamny include They're Both Wrong: A Policy Guide for America's Frustrated Independent Thinkers, The End of Work, about the exciting growth of jobs more and more of us love, Who Needs the Fed? and Popular Economics. He can be reached at jtamny@realclearmarkets.com.  

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