President Obama: Universities Need More Money

President Barack, in his first State of the Union Address, has announced that he doesn't think that it costs enough to go to college. Apparently, Harvard College's endowment of $36,556,284,000 (which increased by 5.5% from 2007 to 2008) isn't quite sufficient. Yes, you read that right, Harvard's endowment is in excess of $36.5 billion.

What's that? You didn't hear that in the President's speech last night? OK, he didn't phrase it in quite that way. Here is what he did say.

To make college more affordable, this bill will finally end the unwarranted taxpayer subsidies that go to banks for student loans. Instead, let's take that money and give families a $10,000 tax credit for four years of college and increase Pell Grants.

That sounds pretty good, doesn't it? The government is going to give everybody up to $2,500/year for four years of college and increase the amount of grants available at the same time. In fourteen months, I will have four teenage children. Three years from now, I will have four children in high school. I expect that all four of them will attend college. I should have been on my feet cheering the fact that so much money was going to be made available to help me put my kids through college.

I wasn't.

The more that government tries to help make higher education more affordable by providing assistance in the form of grants (the tax credit is essentially a $2,500/year grant) and loans, the higher college tuition becomes. It's really fairly simple economics - the number of dollars vying for the same number of seats results in inflation in the form of higher tuition.

If I had $5,000 to spend on college tuition prior to this new tax credit, then I would now have $7,500. That would be great news if it weren't for one small fact; nearly everyone else in the country would also have an extra $2,500 to spend on college tuition. Unless there were an increase in the total number of seats available, each college and university would still have the same sized slice of the higher education pie. It's just that the pie would be bigger.

Most of the "elite" colleges, the ones that parents like to brag about their progeny attending, don't need any more money. Of the schools with the ten largest endowments, only one, Columbia, saw the size of their endowment shrink from 2007 to 2008, and that was less than one-tenth of one percent. Of the top 30, there were thirteen schools who were less well endowed in 2008 than they were in 2007 - almost exactly one-third of the schools on the list.

College tuition as not increased just because it costs that much more to give a student a college education, they have increased because of market forces, higher costs merely being one of many factors involved. Giving families more money to spend on higher education may sound good, but when it results in ever higher tuition, the benefit is significantly diminished. Of course, a President that has never had to balance a ledger might not be expected to realize this. Barack Obama may not have said outright that college tuition should be higher, but he might as well have.