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After Solving Student Loan Issue, Look at Costs

Among the many unresolved issues in Congress, the student loan matter looms large. If Democrats and Republicans don’t find a pay-for, student loan interest rates will double to 6.8 percent on July 1, hitting hard a group of people already staggering under loan burdens.

To be sure, artificially keeping rates low is not the best way to do things, but the larger set of problems is real.

Higher education costs keep rising at a rate faster than even health care inflation. The number of students dropping out and not graduating but still facing heavy loan burdens keeps going up as well. The number of higher-paying jobs, at salaries substantial enough that graduates can meet high loan payments, keeps going down. The number of young people with jobs where the take-home pay cannot begin to meet monthly loan requirements is burgeoning.

And the problems clearly go beyond students themselves: Parents and even grandparents in many cases are facing bankruptcy because they have guaranteed the loans of their progeny.

The direct issue at the federal level is not just mandated interest rates, but Pell Grants, under pressure as all discretionary domestic programs are. Add to that the problems for public colleges and universities as states with budgets under strain cut back on aid and subsidies to their institutions, causing sharp increases in in-state tuitions. Poor and middle-class kids who want to go to college are being squeezed coming and going.

Obviously, Congress needs to find an immediate compromise on the interest rate question. And in the zero-sum budget wars ahead, there has to be real sensitivity to the important need that Pell Grants meet. But there are larger issues here that Congress really should address, ones that with some effort can avoid the usual partisan and ideological wars. They start with a careful and deep examination of why tuition costs keep going up so much faster than overall inflation.

I don’t pretend to have an answer to this key question. No doubt a part of it is the combination of tenure and the end of mandatory retirement ages: More very senior and higher-paid faculty are staying on longer and longer, costing more and providing, in many cases, lower productivity than would young junior faculty.

But whether that is a major or minor factor is unclear. A part of it might be, as many lawmakers have noted, the impetus for colleges to put lots of money into attractive and expensive buildings — but the fact is that development offices find it far easier to get big money from rich donors if they put their names on big fancy buildings than if they ask for general funding.

Another part of it could be that colleges have changed their pricing and recruiting strategies. Some analysis shows that net college costs — the costs after grants and scholarships are taken into account — have not been going up so rapidly.

Colleges have become a bit like car dealers, where the sticker price does not reflect the actual cost to most buyers. Some can afford to pay the full boat, helping the colleges maintain their budgets, while others can get deep discounts.

And colleges, under this theory, keep their prices up to match their competitors because a lower tuition would be seen by many prospective students and parents as a reflection of lower quality compared to their peers.

Many economists also point out that federal subsidies for higher education are themselves a contributing factor in increasing college costs.

I am sure there are many other factors and that they vary according to school, region and state. But it makes sense to hold serious hearings on this, not to bash colleges or rail against presumed pampered professors, and to look at ways to keep college costs from going up even more and pricing too many students out of the market without damaging the quality of the universities.

That leads to another and larger reality. Our higher-education system is our crown jewel. It has long led the world and is a major part of the reason that the overwhelming majority of Nobel laureates come from or are based in the United States. We cannot afford to let this system deteriorate, either as the engine of basic research and creativity or as the magnet for the best and brightest in the United States and around the world.

States such as California and Michigan cannot afford to let their public university systems, their crown jewels, deteriorate, whether it’s because state legislatures cut funding or because of the economic downturn and the loss of federal aid.

The crazy fandango going on now over the looming sequesters, including House GOP plans to implement double cuts in discretionary domestic spending in order to preserve every dime of the defense budget, completely bypasses the implications of cuts not just for students but for the entire future of the country and its role in a global economy, in which a robust higher-education infrastructure is key.

That is not a liberal or conservative position, but a simple reality that should not be ignored in a headlong rush to cut government.

Norman Ornstein is a resident scholar at the American Enterprise Institute.

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