Cut college costs using carrots, not sticks

Tim Goral's picture
Wednesday, January 15, 2014

It’s no secret college costs too much. In fact, we’re at the point where student debt exceeds that of credit card holders. This is a particular problem for first-generation and low-income students (the ones the president wants to talk about in an early 2014 White House meeting). If this barrier to education is not addressed, our economic competitiveness and standard of living will fall, as the Commission on the Future of Higher Education warned in 2006.

The magnitude of the cost problem can be seen in the results of a 2012 study by Higher Education Strategies. In the United States, it now takes more than 50 percent of a new grad’s average first-year salary to pay one year of college debt. Only in Mexico and Japan are students paying a higher percentage. German, French and Scandinavian students pay less than 5 percent of expected first-year salary.

No single cause can be identified for these increases over the past 10 years. The changing revenue model of public education, however, is certainly a factor. Other contributors include the loss of income from institutional reserves and endowments (because of low interest rates); health care costs for the sector’s large workforce; and, less noted, the growth in the cost of regulatory compliance.

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