But Now You Know

The search for truth in human action

How Student Loans Increase Your Tuition


People are complaining, as they should, about how tuition prices are shooting up far faster than inflation…in fact, how they went up even faster while the economic depression had prices stagnant or falling, nationally.

The commodity subsidized the most, is the one that's gone up the most in price. In fact, each of these is inflated in accordance to its subsidization, although energy's short-term volatility is a result of our self-destructive foreign policy.

It seems that the more the government increases grants and student loans, and gives special breaks to students or parents to help them pay for college, the more those prices shoot up and undo that benefit.

But this is not a coincidence. It’s exactly what must happen, because of those student benefits…and the more the government hands out student aid, the more the laws of Supply and Demand and of Unintended Consequences will force tuitions higher:

Subsidies

When you give away money to help people buy something in an industry, it’s technically called a “Subsidy“…and the primary function of a subsidy is to raise prices. The government, unfortunately, often does just that, on purpose, giving a subsidy in an industry because it’s been bribed by lobbyists to place the profits of the producers over the needs of the members of society (aka consumers). Farm subsidies are how it keeps milk and other staples too expensive for poor people to buy without the government’s own “help”, for example.

The way a subsidy works, of course, is that you increase the number of dollars available to buy the product, while the actual demand for that product, and therefore its supply, stays more or less the same. If people generally choose to spend a one hundred million dollars per year on apples, and they average $1 a pound, then the government offers people an extra fifty million dollars to “help” them buy apples, the average price of apples can increase to $1.50 a pound, driving up prices of pies, and giving poor people one less healthy snack they can afford. That’s a bit oversimplified, but pretty much how subsidies are used.

Sugar cane field

Sugar cane is cheaper, and better for the environment than beet sugar, but punished by a beet subsidy

People didn’t actually want beet sugar more than cane sugar, the government simply threw more money at it, so that there was more to spend, and prices rose to a new level.  Why? Bribes from beet farmers.

Of course the poor benefit from the inexpensive calories of sugar, so this hike in prices caused them to go hungrier…but they don’t have lobbyists as powerful as the more corrupt and irresponsible farm organizations do.

But money poured into an industry to pay for its goods is a subsidy, with the price-boosting impact, no matter whether that’s the official intention or not:

Health Care Prices

For example, Bush’s own socialized medicine plan, Medicare Part D, threw hundreds of billions of dollars at pharmaceutical companies, for the same medicine that was already out there. Naturally, prices went up even higher, helping precipitate the “crisis” that was used to pass Obamacare…and the Obama administration now admits that, indeed, the added money from Obamacare has caused health care prices to shoot up even faster, even in the short time since it was enacted…and contrary to the claim that it had to be rushed through to reduce prices.

In fact, if you track health care prices through the past century, they shoot up each time the government imposes a program to “help” pay. The largest increase was immediately after Medicare was implemented.

College Tuitions

Occupy Wall Street protester, complaining about student loan debt

The Occupy Wall Street movement is correct to complain about the massive debt created by student loans...because those loans have increased tuitions, tenfold.

Therefore, it’s really no surprise that college tuitions go up each time government grants and loans increase, even when the economy is weak and driving many other prices down.

In fact, with the government’s fake “student loans” and grants now making up the majority of all money spent on tuition, it would be impossible for tuition prices to do anything but be inflated by many times what they would be if colleges had to actually compete for student money, directly.

People are, right now, complaining loudly about how tuitions are going through the roof…but Big Brotherment’s response has simply been to throw even more money at tuitions, like Obama’s recent, unconstitutional Executive Order, even though this will just increase tuitions more.

It’s as if your doctor’s proposed response to emphysema was for you to chain smoke, because the nicotine will make you feel good.

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November 11, 2011 - Posted by | Economy, Education, Politics | , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,

2 Comments »

  1. How does that differ from what you call “actual” demand (in terms of affecting supply)? If I start paying people to buy a certain product, I’d expect the demand curve for that product to shift upward, creating a new equilibrium.

    Comment by Nix | November 13, 2011 | Reply

  2. [...] Ever been curious as to how college tuition has been increasing compared to other services over the years? But Now You Know has a great chart in one of their recent posts. [...]

    Pingback by Out And About 11/12/2011 » All Things Expounded | November 12, 2011 | Reply


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