Student Loans Aren’t the Cause of Rising Tuition

Arthur Herman and Alex Pollock might agree in a quiet moment that they don’t fully embrace their contention that “higher education institutions collect vastly inflated tuition and fees” thanks to federal student loans. At first glance the argument makes sense, but then both Herman and Pollock would probably agree that members of the right wisely subscribe to the view that second and third glances are required for what, at least at first glance, reads as obvious.  

Regarding tuition, a second glance from the policy experts would have them asking why U.S. private schools (K-8, 9-12) are similarly charging “vastly inflated tuition and fees” in concert with universities. Figure that at least for now, there are thankfully no federal loans out there for private school tuition before college, yet tuition continues to soar.  

Herman and Pollock might respond, and in fact Pollock did respond in an e-mail exchange with me, that growing affluence among parents would likely be an explanation for private school tuition that continues to skyrocket. No argument there. None at all. Indeed, that’s long been my argument. A sign of inflation? No, a sign of a lack of inflation such that capital continues to be matched with the talented on the way to massive wealth creation. Rising prices are NOT inflation despite what we’re told, as a rising price signals a falling price elsewhere, by definition. Inflation is a currency phenomenon, but that’s a digression.  

Back to tuition prices, what Pollock acknowledges calls into question the assertion made by him and Herman about federal student loans existing as the source of “vastly inflated tuition and fees.” In reality, soaring wealth combined with a demand for exclusivity is what’s powering tuition increases at universities and in educational institutions at the elementary and high school levels.  

Only for the reality of rising college tuition to become arguably even more obvious when the global economy is factored in. Indeed, while K-8, 9-12 education in the U.S. is generally an American student thing, university education in the U.S. has global qualities. In which case it’s not just affluent American parents with checkbooks in hand bidding up tuition costs, it’s parents who are part of an increasingly liberalized (in the economic sense) world opening their checkbooks to U.S. universities that are seen by many as the best of the best. That college tuition continues to increase in light of global demand reads as a statement of the obvious. Only for the reasoning of Herman and Pollock to take a disappointing turn, one expressed in the aforementioned email exchange with Pollock.  

About the troubling direction, it should be made clear that you will not find a defense of federal student loans in this opinion piece. Quite the opposite. The view here is that the federal government should have no role in education, and by extension no role in the financing of it.  

Instead, the argument here is with arguably simplistic attempts at correlation. Not only do Herman and Pollock confidently assert against a lot of evidence that rising tuition is a consequence of federal loans, they want to put colleges and universities on the hook for defaulted loans. This was hard to agree with.  

For one, it implies that college education prepares tomorrow’s workforce for the working world such that if borrowers default, the university at which they were educated is somehow at fault. Nonsense. And Pollock in particular knows why. The future of the economy and the work within the economy is rather unknowable given the dynamic nature of the U.S. economy.  Put another way, it’s in growing economies that jobs are destroyed the fastest. To then pretend that college is teaching us how to prosper in a working world that the richest of rich investors routinely fail to grasp redefines fabulist. If you fail in the U.S., it’s your own failure. Not the failure of universities to properly teach you. The right is increasingly comfortable with victimhood, and that’s too bad.  

Herman and Pollock then assert that “the more affluent the college is, the higher its participation in the losses should be” from defaulted student loans. The co-authors base this on elite colleges presumably benefiting from rising tuition the most as evidenced by their nosebleed tuitions, plus they claim the “wealthiest colleges” can most “easily afford” covering losses. In an economic sense, their argument sounds like ones made by left wingers for decades about how the rich should pay “their fair share” in taxes since they can most “easily afford” tax increases. Someone who likely agrees with their thesis, Richard Vedder, made just this argument about “fair share” in a recent opinion piece for the Wall Street Journal. No thanks.  

Secondly, Herman and Pollock arguably mistake who “benefits” from generous federal lending. To see why, imagine if reason prevailed and federal student loans were abolished tomorrow. If so, does anyone seriously think the abolishment would in any material way impact the ability of Harvard, Stanford, Princeton and Yale to fill out their classes? Hopefully the question answers itself. Given the global demand for the prestige that the aforementioned schools represent, it’s not remotely a reach to say that all four could quadruple their tuition for 2024-25 and they’d still easily fill their freshman classes at full tuition and without the help of any federal loans.  

Which leads to just one more of many critiques. Herman and Pollock are surely correct in their implied assertion that the federal government should get out of the business of federal loans, only for them to seek greater empowerment of that same federal government as the path. Think the force required to make universities (and rich ones in particular) share the losses born of default. Fix a problem of government with more government? No thanks most definitely. Conservatives are supposed to be making cases for limited government. Herman and Pollock didn’t in this case.

Republished from RealClear Markets


  • John Tamny

    John Tamny is a popular speaker and author in the U.S. and around the world. His speech topics include "Government Barriers to Economic Growth," "Why Washington and Wall Street are Better Off Living Apart," and more.

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