Hillary Clinton and Bernie Sanders seem to be competing to see who can give out the most free candy at taxpayer expense. This time it’s higher education they are trying to make “free” (read “paid by you and me”) What they don’t seem to understand, other than the basic economics of supply and demand, is that injecting federal money into colleges is a primary driver of education inflation. Both the Clinton plan and the Sanders plan double down on this misallocation of resources. As a friend of mine observed:
“Instead of making education cheaper, we’re going to just keep it expensive, and pass the non-savings on to you, the taxpayer. Right now colleges have almost no incentive to keep costs low. In fact, they have every incentive to keep costs very high because all increases in cost are passed on to the government or student loan debt.”
Clinton unveiled her plan to make college more “affordable” this week and looks to be making it a centerpiece of her campaign. It involves setting up another $350 billion in federal grants and appropriations, on top of the massive number of grants and appropriations we already have. Critics from the left are already attacking her plan as too stingy. Socialist Bernie Sanders has a plan to make college free for everyone by making the government (You and me) pay for it.
First let’s disabuse Clinton and Sanders of the foolish notion that colleges are primarily funded by tuition and fees. They are not. Only 22% of public college revenue comes from the students. The major revenue stream for public colleges is “government grants, contracts, and appropriations”. Of the 22%that does come from students, a large chunk is just more government money passing through students to colleges in the form of government financed or subsidized student loans. In effect there is no free market in education. Schools have no incentive to price tuition competitively because government funds keep covering the difference.
More students, using other people’s money, are chasing the same number of seats. This drives up costs. If we had capitalism, education loans would be no different than car loans, and the market would work out the rest. By injecting so much government backed money into the system, America has massively over invested in education, but gotten no additional education value for our money. It’s time we stopped feeding the beast and forced them to compete on quality and price like everyone else.