Big Government Created the Higher Education Bubble
Occupy Wall Street activists should direct their anger over student debt toward the right target: government.
When the Occupy Wall Street movement burst onto the scene last fall, one of the chief concerns expressed by activists — especially younger protesters — was the debt that millions of American students are facing as a result of the exorbitant costs they’ve had to pay for higher education. Many Occupy activists have demanded a bailout in the form of debt forgiveness and some have even gone so far as to suggest that government should provide universal higher education. But if we’ve learned nothing else from these past few years, we should have learned that government bailouts do more to prolong problems than to solve them and that the more government becomes involved in solving a problem the worse the problem becomes.
Take the bank bailouts, for example. Rather than forcing banks to accept the consequences of their irresponsible practices and reform them, the Troubled Asset Relief Program (TARP) and the Federal Reserve’s more secretive bailouts only encouraged banks to continue behaving irresponsibly with the assurance that government will come to the rescue.
If government’s eagerness to subsidize irresponsibility with taxpayer dollars isn’t enough to convince you that government can’t solve our higher education problems, you may want to consider government’s role in creating the very problems that have plagued the banks. While many progressives like to blame banking deregulation for the mortgage crisis, the disaster actually occurred as a result of government misregulation, congressional affordable housing mandates, previous bailouts, and expansionary monetary policy by the Federal Reserve. Government both created the housing bubble and helped burst it.
Government has been just as complicit in the creation of the higher education bubble and the massive student debt that now threatens to burst it. As Michael Barone noted in a National Review article almost a year and a half ago:
A century ago, only about 2 percent of American adults graduated from college; in 1910, the number of college graduates nationally was 39,755 — smaller than the student bodies at many campuses today.
Higher education expanded when the G.I. Bill financed veterans’ education after World War II and then expanded further with postwar growth. The federal government’s student-loan subsidies have enabled institutions to grow faster over the last three decades than the economy on whose productivity they ultimately depend.
Indeed, government officials began arguing that more Americans needed higher education during an era when Americans without postsecondary learning were more prosperous than ever before. In the absence of actual need, government began subsidizing higher education first for returning veterans and then for others. Freed from the problem of a small pool of college graduates from which to choose and from the responsibility of paying to educate and train their own employees, businesses that previously had not made a college degree a prerequisite for employment began requiring it. In other words, government began subsidizing higher education to meet a need that did not exist and, in so doing, created the need — leading to the rapid expansion of higher education and the accompanying growth of student debt.
In creating the higher education bubble government has also created the conditions that will very soon lead it to burst. The pool of qualified college graduates has now become too large; there simply aren’t enough jobs for them to fill. While some college graduates may be able to find employment for which they’re overqualified and while such employment may provide enough income to meet their basic needs, they will not earn enough to be able to pay back their student loans. Soon graduates will begin defaulting on their loans en masse and a crisis very much like the disasters we saw in ‘08 will ensue. This time the bursting bubble will unavoidably mean a government spending crisis because, perhaps sensing the inevitable failure of their policies, government officials already promised to subsidize this catastrophe long ago by making taxpayers the guarantor of most student loans.
One might well ask why government has pursued these policies that were so clearly destined to fail. We can’t rule out ineptitude. But we also shouldn’t rule out good, old-fashioned greed. The higher education bubble has been a bonanza for public employees like college and university administration and faculty as well as for banks and corporations. Administrators and professors have been empowered to live high on the hog, spending as much as they want with the assurance that more taxpayer dollars will be coming their way. Banks, meanwhile, have been able to lend to whomever they want and draw profits from the interest with the assurance that taxpayers will pay if the borrower cannot. And as I’ve already noted, corporations have benefited from a better educated pool of applicants for employment without having to pay to educate and train their employees themselves.
The government-created higher education bubble has already begun to burst. Can’t you almost feel the impending crisis every time you hear a young Occupy Wall Street protester expressing his outrage over student loan debt? He’s outraged because he can’t pay his debts back, and he’s not alone. When the bubble finally bursts, we’ll be told that the solution is more government spending and more government control. But government spending and government control are what got us here.
The real solution to the coming crisis won’t be found in more bailouts or in universal higher education. The solution to this crisis, and most of our other problems, is a free market. A free market will deprive administrators and professors of their guaranteed government revenue, forcing them to make cuts that will lower costs and enable many students to seek higher education without accumulating tens of thousands of dollars in debt. A free market will also force employers who have no business demanding college degrees from their employees to drop that prerequisite for employment as the pool of college graduates shrinks. Meanwhile, businesses that have a legitimate need for better educated or trained employees may have to cough up some dough for the cost of higher education and training themselves.
Occupy Wall Street activists have voiced a legitimate grievance in their complaints about our higher education system. But they need to recognize that government has caused these problems and government won’t fix them. If they really want to fix these problems, they should demand that government get out of higher education altogether and let free market mechanisms take over to lower costs and reduce the need for postsecondary learning. And here’s a good rule of thumb going forward: When it comes to government, the less the better.