STUDENT 1: I have approximately $60,000 in
student debt. STUDENT 2: I’m feeling little bit of anxiety
about it, little bit of—there is going to be a lot of work towards paying that down. STUDENT 3: It’s pretty overwhelming to have
all this debt, trying to plan for the future in general. PROFESSOR LIN: College tuitions keep rising
and rising, leading students to take on more and more debt to get an education. Tuitions
have been rising because demand for college has been rising. That demand has been fueled
by two things: better prospects for college graduates and government subsidies for higher
education, such as government-backed student loans. While the first is a healthy reason
for more demand, the second is most definitely not. Subsidies distort market signals. While their
goal is to make college education more affordable for students, in reality they push up tuitions
by artificially increasing demand. One way to break this cycle is by ending subsidies.
If you worry that cutting subsidies would mean fewer people going to college, you’re
right. Our current system of subsidies may encourage
more students to attend college than ever before. However, many of those students struggle.
Two-thirds can’t graduate within four years. Forty percent don’t graduate at all. In
fact the U.S. has the highest drop-out rate in the industrialized world. And if that’s
not bad enough, the people who do graduate don’t necessarily end up with the high-paying
jobs they were expecting. While the average college graduate earns more than the average
high school graduate, not all college graduates earn higher incomes. Economist Alex Tabarrok finds a stark example
of this. In 2009 there were almost as many psychology majors graduating as the total
number of jobs in clinical counseling and school psychology in the whole country. Tabarrok
also finds this problem outside of psychology. Half of graduates in the humanities end up
in jobs that don’t even require a college degree. That means these students have loaded
up on debt to pay higher and higher tuitions just to end up with jobs that pay much less
than expected. That’s what our current system encourages.
A more sensible system would not encourage people to spend years in college then drop
out, burdened with debt. But if we eliminate subsidies, are we putting poor students at
a major disadvantage in the job market? Fortunately, no. Sitting in a college classroom for four
years is not the only path to higher earnings. In other industrialized countries, training
and apprenticeship programs are viable options for high school graduates. These programs
are often funded by employers who have a vested interest in giving students valuable work
skills. It makes sense that students are worried about rising tuition and more debt. But while
they looked at government subsidies as a way to cope with these problems, they should realize
that subsidies themselves are contributing to the problem. And if a policy is worsening
the very problem you’re trying to fix, it’s time to change it.