Colleges’ Spending Contributes to Woes

Published November 29, 2008

One of the great tragedies affecting higher education today is the overpricing of an education that carries less and less value. Your editorial wisely criticizes a bailout of student lenders as fiscally irresponsible but neglects to mention the danger of the rising costs of student loans and the spending problem faced by many universities.

The proposed bailout of lenders providing high-cost private student loans could amount to more than $60 billion, with the funds coming out of Treasury Secretary Henry Paulson’s $700 billion economic rescue plan.

A bailout of private student loan companies would only exacerbate the real problem of rampant spending by colleges. Over the past 10 years, after-aid educational costs – including tuition, fees, and room and board – increased 24 percent at private four-year colleges and 35 percent at public institutions.

Over that same period, federal aid to higher education increased 77 percent, from $48.7 billion to $86.3 billion.

The private student loan industry’s reliance on government aid ultimately encourages poor spending habits and stifles financial innovation. Increasing the flow of student loans without addressing the spending problem will only ensure that another bailout will be just around the corner.