[Congressional Record Volume 157, Number 109 (Wednesday, July 20, 2011)]
[Extensions of Remarks]
[Pages E1367-E1368]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




            WILL COLLEGE BUBBLE BURST FROM PUBLIC SUBSIDIES?

                                 ______
                                 

                        HON. JOHN J. DUNCAN, JR.

                              of tennessee

                    in the house of representatives

                        Wednesday, July 20, 2011

  Mr. DUNCAN of Tennessee. Mr. Speaker, it shocks students at the 
University of Tennessee when I tell them it cost me only $270 tuition 
my freshman year and $405 my senior year in 1969.
  George Washington University, where I attended law school, was 
private and ``expensive'' at around $1,000 a semester. Students there 
now marvel at that figure.
  Students could attend college in the late 60s and early 70s and pay 
all their expenses just by working part time.
  No one got out of school deeply in debt for tuition and fees.
  But costs simply explode on anything the federal government 
subsidizes. Healthcare was cheap and doctors even made house calls 
until the government got into it.
  Since the federal student loan program started, college tuition has 
gone up three or four or five times the rate of inflation, ranging from 
school to school, almost every year.
  Before the government started ``helping,'' tuition went up at the 
rate of inflation. Now costs are 300 or 400 percent higher than if we 
had just left things alone.
  A few years ago, I heard excerpts from a book called Going Broke by 
Degree. That is what many students are doing today by incurring huge 
student loan debts.
  And the colleges and universities have been able to tamp down any 
opposition to tuition increases by encouraging an attitude of ``don't 
worry--we'll just give you an easy, no-interest student loan.''
  I have been concerned about this for several years and especially 
after I started noticing so many college graduates working as waiters 
and waitresses in restaurants.
  This is why I was so pleased to read a great column on this topic by 
Michael Barone in the July 20 edition of the Washington Examiner 
newspaper.
  Mr. Barone is very respected, and he is right on target in this 
column, which I would like to call to the attention of my colleagues 
and other readers of the Record.

             [From the Washington Examiner, July 20, 2011]

            Will College Bubble Burst From Public Subsidies?

                          (By Michael Barone)

       When governments want to encourage what they believe is 
     beneficial behavior, they subsidize it. Sounds like good 
     public policy.
       But there can be problems. Behavior that is beneficial for 
     most people may not be so for everybody. And government 
     subsidies can go too far.
       Subsidies create incentives for what economists call rent-
     seeking behavior. Providers of supposedly beneficial goods or 
     services try to sop up as much of the subsidy money as they 
     can by raising prices. After all, their customers are paying 
     with money supplied by the government.
       Bubble money as it turns out. And sooner or later bubbles 
     burst.
       We are still suffering from the bursting of the housing 
     bubble created by low interest rates, lowered mortgage 
     standards, and subsidies to Fannie Mae and Freddie Mac. Those 
     policies encouraged the granting of mortgages to people who 
     should never have gotten them, and when they defaulted the 
     whole financial sector nearly collapsed.
       Now some people see signs that another bubble is bursting. 
     They call it the higher education bubble.
       For years government has assumed it's a good thing to go to 
     college. College graduates tend to earn more money than non-
     college graduates.
       Politicians of both parties have called for giving 
     everybody a chance to go to college, just as they called for 
     giving everybody a chance to buy a home.
       So government has been subsidizing higher education with 
     low-interest college loans, Pell Grants and cheap tuitions at 
     state colleges and universities.
       The predictable result is that higher-education costs have 
     risen much faster than inflation, much faster than personal 
     incomes, much faster than the economy over the past 40 years.
       Moreover, you can't get out of paying off those college 
     loans, even by going through bankruptcy. At least with a home 
     mortgage you can walk away and let the bank foreclose and not 
     owe any more money.
       Peter Thiel, co-founder of PayPal, is adept at spotting 
     bubbles. He cashed out for $500 million in March 2000, at the 
     peak of the tech bubble, when his partners wanted to hold out 
     for more. He refused to buy a house until the housing bubble 
     burst.
       ``A true bubble is when something is overvalued and 
     intensely believed,'' he has said. ``Education may still be 
     the only thing people still believe in in the United 
     States.''
       But the combination of rising costs and dubious quality may 
     be undermining that belief.
       For what have institutions of higher learning accomplished 
     with their vast increases in revenues? The answer in all too 
     many cases is administrative bloat.
       Take the California State University system, the second 
     tier in that state's public higher education. Between 1975. 
     and 2008 the number of faculty rose by 3 percent, to 12,019 
     positions. During those same years the number of 
     administrators rose 221 percent, to 12,183. That's right: 
     There are more administrators than teachers at Cal State now.
       These people get paid to liaise'' and ``facilitate'' and 
     produce reports on diversity. How that benefits Cal State 
     students or California taxpayers is unclear.
       It is often said that American colleges and universities 
     are the best in the world. That's undoubtedly true in the 
     hard sciences.
       But in the humanities and to a lesser extent in the social 
     sciences there's a lot of garbage. Is a degree in Religious 
     and Women's Studies worth $100,000 in student loan debt? 
     Probably not.
       As economist Richard Vedder points out, 45 percent of those 
     who enter four-year colleges don't get a degree within six 
     years. Given the low achievement level of most high school 
     graduates, it's hard to avoid the conclusion that many of 
     them shouldn't have bothered in the first place.
       Now consumers seem to be reading the cues in the 
     marketplace.
       An increasing number of students are spending their first 
     two years after high school in low-cost community colleges 
     and then transferring to four-year schools.
       A recent New York Times story reported that out-of-staters 
     are flocking to low-tuition North Dakota State in frigid 
     Fargo.
       Politicians, including President Obama, still give lip 
     service to the notion that everyone should go to college and 
     can profit from it. And many college and university 
     administrators may assume that the gravy train will go on 
     forever.

[[Page E1368]]

       But that's what Las Vegas real estate developers and home 
     builders thought in 2006. My sense is that once again, well-
     intentioned public policy and greedy providers have produced 
     a bubble that is about to burst.

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