If You Subsidize, They Will Come

From 2000 to 2010 total student debt rose from about $200 billion to $830 billion; it now exceeds $1 trillion. Over the same period, student enrollment rose 37 percent while the number of degree-granting institutions increased by only 7 percent. And throughout, the rise in college tuition and fees has consistently outpaced the rise in overall consumer prices.

Greater aggregate demand (more people seeking a college education) and the resulting tuition inflation have caused much of this 300 percent increase in aggregate student loan debt. Is this something more than a tuition bubble? Perhaps colleges were paying premium salaries for "star" professors or institutions were unprepared to efficiently manage the huge influx in students. But the law of supply and demand is impossible to escape.

There is a link between the popular draw to and political push for college and homeownership: they are parts of the American Dream, a hope to be better off than the preceding generation. In his book The Epic of America, author James Troslow Adams wrote that "life should be better and richer and fuller for everyone ... It is not a dream of motor cars and high wages merely, but a dream of social order in which each man and each woman shall be able to attain to the fullest stature of which they are innately capable."

But let's separate dreams from needs. The dream that everyone deserves a college education differs from the need for a well-educated, capable labor force that makes us all smarter and more prosperous. The dream that everyone deserves to own a house differs from the need for a well-housed, mobile populace that isn't burdened with cumbersome, wealth-destroying debt.

We must realign government to help students align the education and labor markets.  We must remove direct subsidies for indebtedness and eliminate all indirect subsidies such as tax credits and deductions. The supply of higher education has not kept pace with demand, and below-cost student loans pump up demand. Some college students graduate with debt and no job partly because their degrees don't satisfy employer needs. If capable students need tuition assistance, let's offer educational grants that provide the economy with vital skills while moderating post-graduate financial obligations.

Education can provide the tangible skills and critical thinking needed to help our economy grow; let's find ways to expand that supply. But if college for some is instead a dream with no roots in the realities of the job market, let's make students wiser to set their expectations so they can become the next Greatest Generation.