The Gush of Subsidies and the College Wonderfall

There was a time when ample walkways, a pleasant assortment of pine needles, and a statue of the founding president would suffice for a college campus.

Not anymore. Today’s campuses host athletic stadiums fit for the pros and $1.5 million sculptures, accompanied by a robust administrative staff to handle the logistics of running these mini-metropolises.

But while attendance, offerings, and price tags are on the incline -- the cost of college has increased 60 percent in the last decade and enrollment rose 37 percent from 2000 to 2010 -- the quality of education and job preparation is not following the same trajectory. A report by the Associated Press reveals that nearly 54 percent of college graduates are underemployed or unemployed.

The relationship between rising college costs and the way these institutions choose to spend their money is not serendipity, but one formed and supported by federally subsidized student loans. By making student loans easily available to so many young adults, the federal government is driving up not just college enrollment, but also costs.

Tuition has increased more than double the rate of faculty salaries, which have fallen flat in the last decade. Instead of investing in full-time faculty members, schools are adding full-time support staff and part-time instructors to their payrolls.

Since 1987, support staff has grown by 100 percent, part-time instructors by 53 percent, and faculty employment by just 35 percent. There are now nearly as many full-time staff members per student as full-time faculty (approximately 6 to 8 per 100 students depending on college type).

But colleges are no more culpable in this misguided spending than the Golden Corral is in having its trademark Chocolate Wonderfall (now in three flavors!). They are simply players in a game they do not control. To behave otherwise would mean falling behind in the competition for enrollment dollars.

The real culprit is the federal government, which will collect an estimated $184 billion in profit over the next ten years from interest payments on student loans. Though some say these profits don't actually exist when the proper accounting methods are used, the fact is that this revenue keeps bureaucrats at the Department of Education, along with the private companies that service these loans, in power.

While federal subsidies for higher education are likely here to stay, tweaking the manner in which these subsidies are granted -- for example, scaling back the number of loans awarded and reserving assistance for low-income students -- would go a long way toward bringing tuition rates down. Currently, only 20 percent of federal aid is given in the form of grants to low-income students.

Evidence shows that a smarter, more focused approach would have a dampening effect on the cost of college. This year, tuition rates increased by 2.9 percent, the lowest annual increase in 30 years. At the same time, federal subsidies, while still prominent, declined from a high of $51 billion in 2010-2011 to $45 billion last year.

Those serious about the reducing the cost of college for young adults should take note.

Adam C. Smith is an assistant professor of economics at Johnson & Wales University in Charlotte, N.C.