The Educational Cost of Government Meddling | SchiffGold

The cost of higher education has skyrocketed. And we have the government to blame.

On Wednesday, Joe Biden forgave 7.7 billion dollars in student loans, contributing to a total of 167 billion dollars of forgiven loans during his presidential tenure. 4.75 million people have seen their student debts absolved, which makes up 10% of all student borrowers. But this measure neglects the root of the problem. Why do so many students have massive loans in the first place?

From 1980 to 2016, the price of college increased eight times faster than wages. What used to be a costly expense has ballooned into a budget-breaking endeavor. In a world of innovation and increasing efficiency, why has a college education become more expensive? As is often the case, excessive government involvement is to blame.

For years, government bodies have pumped cash into collegiate institutions in the form of federal student aid and loan subsidies. With steady increases in annual funding, higher education has had a reduced incentive to operate efficiently. Many institutions absorb a large portion of financial aid without decreasing tuition costs, collecting surplus instead of distributing it all to students, which creates a dangerous moral hazard.

The issue is compounded by an educational accreditation system which presents an unreasonably high bar to entry for new institutions. Without the threat of competition, existing schools can continue to hike up prices without having to remain competitive in the market. If higher education was purely subject to market forces, it would be pushed toward efficiency as competitors decreased their costs. Instead, the lack of outward pressure has allowed a productive stagnancy which is eroding young students’ financial futures.

What’s more, many schools aren’t improving educational quality with these excess funds. The percentage of overall expenditures spent on instruction decreased 4% from 2010 to 2021. However, administrative costs still remain high. The average private nonprofit school, which includes most top-tier universities, has administrative costs that exceed instruction costs.

Adding to the problem is the skyrocketing cost of top-tier institutions. In 2000, Columbia’s tuition was $24,000. In 2024, that figure is $68,000. While the best schools should cost the most, these institutions also receive vast amounts of government funding. While some of this is redistributed to the students, continued rises in tuition costs make the effect negligible. While $20,000 in government financial aid seems generous, when tuition is over three times the aid, students are left drowning in debt.

The lack of competition has led to the stagnancy of the American education system. This stems from the protectionism that has surrounded higher learning and has inhibited new and innovative education models from arising. Over the decades, the federal government has crept in as a dictator of higher education. Mountains of regulation have been built up, presenting a tremendous barrier to entry for start-ups, while existing institutions are left trying to comply with the regulations. As universities bloat their bureaucracies to comply with government red tape, students and families foot the bill through higher costs.

The problem is exacerbated by the government’s loose student loan structure, which lends billions of dollars each year to student borrowers with a tenuous ability to repay. 18-year-olds are plunged into 10’s of thousands of dollars of debt and are expected to repay it purely based on increased future earnings. This expectation has not lived up to reality, as there is over 1.7 trillion dollars of student loan debt in the U.S., more than credit card debt and auto loan debt combined.

The government boosts the demand for schooling by shelling out loans while disincentivizing efficiency in the supply of higher education through competition-inhibiting regulation. The natural result of these actions is an increase in academic costs.

The Progressive Danger of an Intervening Government

Government intervention is a slippery slope. Giving one person assistance leads to another, and another, and another. Once you begin issuing low-scrutiny educational loans, your debtors will slowly grow until it reaches a crisis because cutting them off would be an unpopular political move. Eventually, you end up with a government-induced mess of inefficiency and debt.

In the case of education, the true victims of the cycle are the middle-aged Americans saddled with student loan debt with no foreseeable way out. If we are to make strides forward in higher learning, the governmental bodies responsible for the educational disaster need to take a step back to let the market process do its work.

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