Financial Advice

The Real Reason Behind Skyrocketing College Tuition

Sara Goldrick-Rab is among the loudest critics of America’s structures designed to fund college education. She’s a professor of Educational Policy Studies and Sociology at the University of Wisconsin-Madison, working for a state school that is squarely in the cross-hairs of Wisconsin Gov. Scott Walker’s plans to cut funding and eliminate tenure. Her writings include “Reinventing Financial Aid: Charting a New Course to College Affordability,” with Andrew Kelly, for Harvard Education Press. When a recent Federal Reserve study found that increased student loan aid fueled tuition inflation but may not have helped students, Goldrick-Rab told Credit.com that the reality is a lot more nuanced than that. The real reason college costs have risen far faster than inflation is that low-cost options, like inexpensive state schools, are disappearing, she says. Here’s our interview with her.

You believe the entire structure of American college financial aid should be changed. Why?

Higher education doesn’t work like a normal business. It’s much harder to get the results you want out of the investments you make. In my book with Andrew Kelly, Reinventing Financial Aid, I have a chapter where I go back to the inception of the financial aid system and I work through the set of decisions that were made and put in place at the beginning. (There was the question) “Should you send aid directly to students or to schools?” The thinking at the time was – led by economists, including Milton Friedman — we should not send the money to schools, but to students. They argued that doing this would exert control over schools the way we think vouchers do today.

But the thing is (it doesn’t) end up working in the way vouchers were intended. The customers (college students) have a very hard time extracting accountability. Institutions don’t seem constrained at all. I argued in that chapter that we made a critical mistake. By not sending money to the schools we (state and government agencies) gave up the ability to hold schools accountable. But I don’t think we can back our way into that now by attaching a bunch of new rules to existing programs. I think we have to create financial aid version 2.0.

Despite all the criticism of high student loan balances, you think part of the problem is that students aren’t allowed to borrow enough. Why?

One of our biggest issues is the many students who start school but don’t finish. There are people so constrained by lack of credit that they aren’t finishing school. For them, I’m worried about an under-borrowing problem, not an over-borrowing problem. 

A recent study suggests student loans merely help colleges raise tuition, that it doesn’t help students at all. You think the truth is more nuanced. Why?

There’s this idea that maybe if we lower federal loan limits, prices would come down, but it’s not really clear. These things only seem to hold true in private schools. At private, not-for-profit schools, it’s clear that they look to those loans as a source of revenue. But the publics don’t do that in the same way. All the rising prices we see in publics, the vast majority comes from the removal of government subsidies. Public and private schools act extremely differently. The 2-year and 4-year schools act differently. The land grant schools and community colleges are not acting like the other entities, but the public gets completely lost in the conversation about college tuition inflation.

You reserve some of your biggest criticism for private schools that rank in the middle of the pack and big state “flagship” universities. What is it?

They are never happy. They cannot just see themselves as doing a job and doing it well. They have to constantly compete. Instead of constantly looking to do more to measure up to the “Ivies,” they could just be good at being what they are. But the truth is, students at those schools are not the ones defaulting on loans at high rates. The tuition-dependent, nonprofit private institutions, you could go after (the way they are funded), but that’s not going to change the (student loan) default rate. To really reduce the default rates, you’d have to go after the for-profits.

Many people look at resort-like dorms and dining halls and blame tuition inflation on that.

Yes, the amenities race. People think that. But if you look at the data to see how much of this (increase in tuition) is due to amenities, it’s going to be relatively small. At community colleges, there is no amenities race. I wish this were the problem; then we would know what to do.

So what do you think it is the solution to skyrocketing tuition?

The No. 1 driver of the rising price is that we stopped providing lower-cost public options to students. Even going to community college now requires going into debt. If we go back to a situation in which states do pay (for public options), that would be a cost-effective change. The state is going to end up having to pay for services for people who don’t get jobs anyway — they will pay on the back end for the lack of investment now. I am deeply in favor of the free community college movement.

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This article originally appeared on Credit.com.

This article by Bob Sullivan was distributed by the Personal Finance Syndication Network.

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