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Research & Commentary: College Affordability and Student Loan Debt

October 13, 2014

Some 40 million Americans have a total of more than $1.3 trillion in student loan debt, surpassing the national total of credit card debt.

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Some 40 million Americans have a total of more than $1.3 trillion in student loan debt, surpassing the national total of credit card debt. Currently, seven million student loans are in default, and 50 percent of all student loans are in forbearance or deferment. Since 1978, college tuition and fees have risen by 1,134 percent, far outpacing medical costs, which went up by 607 percent, and energy, which rose 359 percent, according to the Bureau of Labor Statistics’ Consumer Price Index.

One reason debt has gotten out of control is policymakers’ emphasis that everyone should attend college, regardless of tuition costs, the cognitive abilities of the student, and the student’s motivation to complete college. Faced with wider pools of persons entering college, some institutions are forced to lower academic standards and increase remedial education costs in order to maintain reasonable graduation rates. On average, today’s college students learn less than those of previous generations, and more than one-third of working graduates are in jobs that don’t require a degree, signaling significant “credential inflation.”

Another reason institutions have become less cost-efficient is that students pay only part of the costs of their education, with third-party payers making up the bulk—through government subsidies, loan programs, and private gifts. The increase in third-party money has bid up tuition costs while reducing the incentive for institutions to use that money efficiently or serve their customers well.

Supporters of government involvement in higher education contend tuition hikes are caused by cuts to state and local support, and therefore schools need more public support, not less. However, the Cato Institute’s Neal McCluskey says long-term evidence shows inflation-adjusted state and local spending on higher education has increased by approximately 29 percent over the last 25 years, and both public and private institutions have increased tuition even more rapidly.

U.S. higher education, despite its dysfunction, is still the best in the world. This is largely because the U.S. system, unlike other nations’, is primarily driven by market-based mechanisms such as consumer choice and institutional autonomy. Both state and federal governments can take greater advantage of market-based reforms by phasing out student and institutional aid. This would give colleges incentives to use dollars more efficiently, better fulfill the needs of their customers, and compete against each other by keeping tuition low. That will make college more affordable and save future students from having to take on great amounts of student loan debt.

The following documents provide additional information about college affordability and student loan debt.


Ten Principles of Higher Education Reform
In this Heartland Institute Legislative Principles booklet, Richard Vedder and Matthew Denhart explain why higher education costs are increasing rapidly while student learning outcomes steadily decline. The authors identify the reforms states should take to jump-start higher education, which is notoriously resistant to change. 

University of Wisconsin Doctoral Candidate Complains to his Supervisor about the School-Mandated Diversity Training
Jason Morgan, a University of Wisconsin–Madison Ph.D. student, wrote an email to his supervisor explaining the ideological and educationally pointless training sessions he and his colleagues are required to attend and taxpayers are forced to pay for are completely unnecessary and should be abolished. 

Did Expansion of the Pell Grant Program Lead to Tuition Hikes?
In a January 2013 article for CQ Researcher, Neal McCluskey, associate director of the Cato Institute’s Center for Educational Freedom, argues federal student aid programs such as Pell Grants have increased tuition, not lowered it. The increasing availability and amount of student aid allowed colleges to raise their prices in response to the increase in demand. 

From Wall Street to Wal-Mart: Why College Graduates Are Not Getting Good Jobs
This December 2010 report from the Center for College Affordability and Productivity examines the declining economic utility of traditional four-year college degrees and finds policies encouraging “everyone” to go to college have flooded the labor market with more college graduates than the amount of jobs that require them. As a result, more than one-third of current working graduates are in jobs that don’t require a degree, the authors note. 

Colleges Drift Away from their Academic Priorities
Writing in The Washington Post on September 24, 2014, staff writer Charles Lane highlights a growing trend among colleges: constructing luxurious recreational amenities such as hot tubs, lazy rivers, water slides, and zip lines in an effort to recruit and retain students. Lane says such amenities appeal to wealthier and less-motivated students who value the social appeal of college over academic development. Lane also cites research showing high-end amenities do not increase student learning or cognitive ability. He concludes colleges and universities should reemphasize academic rigor. 

2013 Year in Review: Student Debt
David Collum, a chemistry professor at Cornell University, describes student debt as a “monumental mess” and states it is “almost guaranteed to hobble a generation and our economy for years.” With tuition rising so much faster than inflation, the focus should not be on sending more people to college but on developing a more skilled populace, Collum argues. 

Cato Handbook on Policy
The seventh (and most recent) edition of the Cato Handbook on Policy, released in 2009, includes a myriad of proposals to reduce the size and scope of the federal government. Chapter 21 discusses higher education policy and explains student and institutional aid greatly distort what would otherwise be a relatively free market in higher education. Such aid programs have led to colleges increasing their tuition rates and, ironically, increasing the demand for the creation of more aid programs. Federal legislators should phase out all aid programs so taxpayers can save money, tuition rates can fall, and institutions will spend capital more efficiently, the Cato authors conclude.


Nothing in this Research & Commentary is intended to influence the passage of legislation, and it does not necessarily represent the views of The Heartland Institute. For further information on this and other topics, visit the Web site of School Reform News at, The Heartland Institute’s Web site at, and PolicyBot, Heartland’s free online research database, at

The Heartland Institute can send an expert to your state to testify or brief your caucus; host an event in your state; or send you further information on a topic. Please don’t hesitate to contact us if we can be of assistance! If you have any questions or comments, contact Logan Pike, Heartland’s state government relations manager, at or 312/377-4000.

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Taylor Smith was a policy analyst for The Heartland Institute specializing in energy, climate, and environmental regulation. He is coauthor with James M.