Capping Student Loans

There is an idea making the rounds that the way to keep costs for higher education down is to place a cap on student loans. If students can only borrow a set amount they will look for cheaper alternatives. Schools who want to attract these students will have to keep the price of tuition and fees below the designated cap.

This is a bad idea. It places the burden on students and tends toward stratification, undercutting the goal of civic cohesion.

One of the great challenges we face as a nation is growing social stratification. Not only are the very rich getting richer, but it has become increasingly convenient for people of all income groups to self-segregate. Residential segregation by class and race is actually getting worse in the United States, posing a particular challenge for school desegregation at the K-12 level.

Though far from a perfect remedy, universities still have some flexibility in working against these trends, if that’s a priority. The elite national institutions have enough money and interest in generating a leadership class that they’ll find a way to fund those they accept. But few of them are significantly increasing enrollment.

Meanwhile, many state institutions are feeling the financial pinch and curtailing capacity. As a basic economic principle, shrinking supply in the face of growing demand creates the potential for higher prices. As their costs increase and their portion of state funding diminishes, it makes sense for these schools to respond by increase tuition and fees. If student loans are capped, they’ll just learn to cater to the subset of students who can pay the new price. (For instance, by recruiting foreign students who are charged a tuition premium.)

Ultimately, capping tuition is more likely to increase stratification than it is to diminish costs. There’s just not sufficient incentive for any university or set of universities to reverse the trend in tuition in order to fall below the cap. Much more effective for them to draw from an international pool of the wealthy and talented than to keep costs within the reach of local residents with less impressive bank accounts, GPAs, and SAT scores.

A loan cap means reinforcing the connection between students’ opportunities and their parents’ wealth, just at the moment when new-found mobility might theoretically release them from patterns of residential self-segregation. This is particularly pernicious in a nation that prides itself on equality of opportunity. It is not an educational policy worthy of our nation.

6 Responses to Capping Student Loans
  1. Grant
    February 6, 2012 | 1:04 pm

    Hey Jason, all great points, but I kept reading & riding the build-up to arrive at the proposed alternative solution. You left me hanging! I think that the rising cost of higher education is one of THE big issues that’s hanging back in the wings while the utterly egregious abuses in the financial sector & the issue of access to quality healthcare take center stage. If tuition keeps rising at the rate it is now, it will become unattainable for huge swaths of the population, further stratifying us into the haves & have nots. Remember our parents talking about “working their way through school” – what a joke that is now, and was even when I started school 15yrs ago!! You’ve always got great, level headed ideas – any thoughts on a sensible path forward?

    • Jason
      February 6, 2012 | 9:05 pm

      Grant, you certainly got me there. I do have some ideas, but I need some time to flesh them out. Unfortunately, I’m facing some other writing deadlines so it will be at least a few days before I get that time. But I promise to tackle what I agree is a huge issue. So stand by.

  2. Grant
    February 7, 2012 | 7:29 am

    Thanks Jason, I look forward to hearing your ideas. I think that this is a big mess brewing that affects our society in so many ways – economic, social, civic…

    To be honest, I’m starting to feel like a waning Rome – seems like all of the momentum is pushing in the wrong direction, and I’m generally a very optimistic, pragmatic person. Maybe that’s just too much Percy Jackson reading with the kids :-).

    Anyway, in the meantime – do you know what ever happened w/ this?

    By my calculation, they were proposing a raise in tuition from about $4,759 USD to $14,250 USD. Do you know what they did in the end?

  3. David LaBau
    February 16, 2012 | 7:17 pm

    I think one of the solutions is that states have to step up, not decrease their support of higher education. The University I am most familiar with is the University of Washington. In constant dollars, the combination of tuition and state aid is essentially the same as it was in 1990 ($16K now and $17K then). In 1990, the state was paying over 80% of the $17K total. In the coming year, they will pay only 30%. I believe higher education is like K-12 education. Certainly it is valuable to the individual being educated, but I would suggest it is equally, perhaps more valuable to our society. It is any wonder the most economically successful communities in our country are those with the highest education? Far too many taxpayers and legislators simply do not get it.

    • Jacob Morgan
      February 19, 2012 | 9:40 am

      There are a lot of sub-issues that are missed by quoting bits and pieces of data.

      The communities with greater percentages of higher education are more economically successful, however:
      -The statistic implies that those communities spend a lot more to fund higher education and as a result are more successful. But, they aren’t taxed more, and they do not currently pay anything more than any other community towards current higher education.

      It isn’t a community full of people who believe so much in higher ed. that they subsidize it. It is purely just a community like ones mentioned in the article, self-segregated into a community of people who value success, hardwork and education.

      The idea that you could significantly raise the taxes of people to pay for future higher education without impacting current economic prosperity is not a very safe assumption.

      There is also a key point that I personally believe is overlooked. Higher education was semi-exclusive for a very long time. As a result, only the people that were driven, ambitious, hardworking, etc. were the ones that sought out higher education.
      Years later, people look at the statistics and say “Wow people with higher education are way more successful than people without, therefore higher education MUST be the cause. Let’s offer higher education to everyone.”
      The fact is, A lot of those people would have been more successful without higher education, based purely on their personalities.

      There are a lot of people who go to college with no idea of what they want to do. As a result, 4 years of their lives (years where they are in prime working condition) are wasted. They don’t have purpose, focus, or care. Higher education does not benefit those people nearly enough to warrant my taxes going up as a result.

      Making higher education more standard will serve at least one purpose. It will prove whether you are right, or whether I am right.

      • Jason
        February 19, 2012 | 9:30 pm


        I replied to most of your comment with a new post. One other issue to touch on here, however, is the measure of whether education is a cause of success or simply a correlate. It is true that there was a time when higher education was limited to an elite few whose success was arguably more a reflection of their character traits (and wealth, race, gender, social capital, etc.) than their degrees. But the latter half of the 20th century went a long way toward democratizing higher ed. First the GI Bill and then the extended post-WWII economic prosperity through the 1970s opened up university education to a whole generation of vets and baby boomers. Plenty of those who would have been excluded previously were suddenly gain access. Their educations in turn boosted the economic strength of the nation.

        So I’m not sure why we’re still waiting to see whether expanding educational opportunity would be a net gain for society. The question remaining is whether we think that net gain is worth the short-term costs.

        Also, I never argued that education should be standardized, only that it should be within the financial reach of all citizens.