College cost reduction

The Democrats have introduced a college cost reduction bill in the House. They propose to reduce subsidies to student lenders, such as Sallie Mae, which is going private, and Student Loan, which is publicly traded but partly owned by Citibank. It would also increase federal student grant and loan limits.

Equitable access to higher education is a priority to ensure social equity. I study at the University of Michigan. Few working-class or poor students are able to attend. The fees are considerable, and they are growing.

This proposal is a band-aid. In the long run, it is worthless.

This story, or some variant, is commonly told in public health or other public policy settings. A nameless protagonist is walking happily along the river. A drowning person comes splashing down the river, yelling for help in between gulps of air. Our protagonist rushes along and saves this person. But one more person comes along, and then another, struggling against the force of the river. A few people from the town come out to help, but the trickle of drowning people has turned into a flood. Eventually, the whole town comes out, but they can't save people fast enough.

Our protagonist is smarter than that, so she runs upstream. People call to her as they float down, but she keeps running. Some distance upstream, she finds that a bridge had collapsed, and people who are walking over the bridge keep falling in. She runs over, and closes the gate to the bridge. Traffic stops. The flood of drowning people stops. Everyone is happy.

College costs are rising rapidly. These days in the US, everyone is mainly concerned about health care costs. However, the way we are going, poor, working-class, and even many middle-class individuals will find their access to high-quality colleges curtailed.

The aforementioned bill will, as I said, do nothing in the long term. In public health, one of the first phrases we learn is "perverse incentive." It means a financial incentive to do the wrong thing. For example, if you use fee for service payment, reimbursing providers for their cost plus a little bit, physicians and hospitals then have financial to order more treatments, even when they are only marginally effective or even unnecessary. This drives cost up for everyone.

The college costs bill could in fact act as a perverse incentive. Now, students have more money. Colleges will have incentive to make further marginal or even unnecessary improvements to their facilities and to their staff pay, so they can attract more students and extract more money out of them.

One of the weaknesses of the American political system is that standing for election every 2 or 4 years breeds short term thinking, like this college costs bill. American leaders need to learn to think long term. The American people need to learn to demand that their leaders think long term.

(PS, do not read that as an endorsement of Singapore's one-party system. That system has its own flaws, chiefly lack of accountability.)