Two years ago I would have said that American higher education had a rational financing plan — one that was increasingly being emulated across Europe and Asia. Given that public treasuries could no longer afford to provide full subsidies to all learners in an age of massification, it made sense to instead provide equitable financing (a.k.a. student loans) which would allow benefiting students to pay for their higher educations over an extended period of time.
To be sure there were problems. Taking out loans only made sense if one earned a degree. The students who policy makers most wanted to help were often averse to loans, while financially better-off families understood that borrowing at favorable rates in an expanding economy was a form of arbitrage they could more than afford. The more-than-abundant supply of loans also allowed families to shop up and, not so surprisingly, allowed institutions to continue to increase prices faster than inflation. These concerns notwithstanding, however, the system was working.
Today it is harder to be as sanguine. The scandals involving financial aid officials — higher education’s own form of payola — have made clear there was too much loose change floating through the system. Rich institutions, seeking to protect the tax-free status of their endowments, have rushed to substitute grants for loans without ever thinking through what their actions might mean for the system as a whole. Institutions that cannot afford to match their largesse are caught in a bind. They are unable to offer the same financial aid packages as their richer competitors, and really unable to lower their prices without doing visible damage to the quality of the educations they provide.
What is clear, to me at least, is that unless the U.S. is prepared to return to a system in which less than a quarter of its young people enroll in college following their graduations from high school, somebody had better find a printing press somewhere.
