“TRANSFER — Free room and board!” As I walk to class each day, my eyes inevitably land on the bold letters of the billboard looming large in the distance promoting a rival university.
While the sign has never tempted me, as I chose my college based on its proximity to home, I have wondered how our rivals are making up for that revenue and whether the offer will be enough to convince any of my classmates to transfer. This comes as my university recently took a bold move: a “tuition reset” that slashed the price of tuition while reducing academic and athletic scholarships. The result? Students ended up shelling out more money overall.
While this promotion showcases the potential of the free market to alleviate tuition expenses, it represents just one aspect of the broader challenge of ever-increasing costs associated with higher education in America. The recent decision by the Biden administration to forgive $7.4 billion in student loan debt will likely only add to this problem in the coming years.
The White House’s decision to grant targeted student debt forgiveness is intended to appease young voters who have been critical of President Joe Biden’s handling of the Israel-Hamas war. Yet, while the immediate effect may boost support among struggling borrowers, it also poses broader questions about the underlying dynamics of the higher education market and the unintended consequences of government intervention.
This decision to cancel loans for some groups of borrowers will likely lead to a misrepresentation of the true cost of a college education, perpetuating the cycle of rising tuition expenses. By fostering the idea that loans will be quickly forgiven, the administration may unwittingly encourage colleges and universities to raise tuition, certain that students will not carry the entire weight of their obligations. This condition, known as moral hazard, has the potential to weaken market systems and intensify affordability difficulties over time.
The issue of moral hazard has already begun to manifest in the delinquency rate of student loan repayment following Biden’s previous attempts at student debt forgiveness. Notably, delinquency among individuals aged 18-29 surged by more than 70% in 2023, suggesting a possible expectation of government loan forgiveness and subsequent reluctance to fulfill repayment obligations.
Of course, this is far from the first time the federal government has attempted to make college more affordable. Government subsidies aimed at increasing access to education drive up demand by incentivizing more individuals to pursue higher education. As more students enroll in colleges and universities, institutions face pressure to expand capacity to accommodate more students, exacerbating the imbalance between supply and demand and leading to inflationary pressures.
Student loan forgiveness might seem like a quick fix, but it’s merely a Band-Aid solution to a much deeper problem as it fails to treat supply and demand imbalances. To address the affordability crisis in higher education, policymakers must embrace market-driven solutions that promote competition and innovation in higher education.
The effect of such policies can already be seen in K-12 education with the rise of school choice programs. A 2023 study from the Heritage Foundation found that the adoption of school choice policies was associated with lower tuition rates in private elementary schools, with no significant effect on high school tuition or overall tuition inflation.
CLICK HERE TO READ MORE FROM THE WASHINGTON EXAMINER
These findings imply that initiatives promoting expanded educational choice could alleviate inflationary pressures on tuition by introducing competition and market dynamics, allowing schools to share cost savings with families. Similarly, fostering a competitive landscape in higher education would encourage colleges and universities to seek cost-efficient strategies and prioritize students’ needs, paving the way for new education models to emerge and offering students greater choice and flexibility in their academic pursuits.
Increased competition would drive down tuition costs over the long term. When colleges and universities are forced to compete for students, they are compelled to offer competitive pricing and improve the quality of education to attract enrollment. This would ultimately benefit students by making higher education more accessible and affordable for all.
Daniel Elmore is a Young Voices contributor studying economics at Lenoir-Rhyne University. Follow him on X (formerly Twitter): @daniel_j_elmore.