8/9/2019 Speak Up Memo April 5

1/3

Speak Up MemoThe Voice of Young Conservatives

THE WEEK OF APRIL 5, 2010

The OutrageUsed and forgotten. In 2008, young people gave Democrats their vote and in 2009Democrats showed young people the door. Well its time to tell the Democrats tostop and listen up. From health care to student loan reform, Democratic policieshave consistently ignored the needs of our generation. If we want change, 2010must be different.

What You Can Do About ItSpeak up! As a conservative we must begin to win hearts and minds before we canwin elections. The process starts by educating people about what we truly believe. Itstarts with you in the classroom.Well arm you with the facts you need to win the argument. Its your job to carry themessage on to your campus. Its your job to speak up! By engaging ourselves in thedebate, well spread the message of conservatism the message of smallgovernment, Xiscal responsibility, and individual rights to one campus, oneclassroom, and one student at a time.

Over the next Xive weeks the CRNC will be looking into the growing entitlements that

left unreformed will doom this countrys Xiscal future. We must realize that

government is not the solution to the problemit IS the problem.

This Weeks Theme: Student Loan Reforms Hidden CostThe Promise: To make sure our students dont go broke just because they chose togo to college, were making it easier for graduates to afford their student loanpayments. Barack Obama

The Reality: Hes right...butonly for student borrowers andonly in the short term.The new student loan reform lowers monthly caps on student loan payments downto 10% of discretionary income. It also shortens the loan forgiveness period to 20years after which the balance may be forgiven. But...

A weekly publication by the College Republican National Committee. Copyright 2010.

8/9/2019 Speak Up Memo April 5

2/3

Fact 1: Economics 101 Tells Us That As Demand Goes Up, So Does the Price

The typical government subsidy comes in the form of Pell Grants. The recently

passed reform bill also acts as a subsidy by artiXicially lowering monthly paymentsand capping the life of loans. As subsidies work to make tuition more affordable theyalso inXluence the supply and demand curve. The market for an education has anequilibrium point at which the number of people willing to pay to attend equals theamount of spots available. As subsidies are introduced, more students can afford ahigher education and the demand curve is shifted upwards. But the market alwaysadjusts to back to equilibrium. In essence

As more students can afford college the demand for higher education goes up. Butthe market always adjusts. The end result will be that despite tuition becoming moreaffordable in the short term, colleges will inevitably increase their tuition as demandrises. As a result, the impact government subsidies (such as Pell Grants andgovernment guaranteed loans) will gradually be reduced to equilibrium. On theother hand, those students (or their parents) who pay their own way will be forcedto bear the increased tuition caused by a marketdistortion of which they took nopart in.

Fact 2:Creating More Money For the Taking

Colleges are rational economic actors. They factor any additional federal assistanceinto their tuition decisions. As the Boston Globe reported,

Every dollar that Washington generates in student aid is anotherdollar that colleges and universities have an incentive to harvest,either by raising their ticket price or reducing the Xinancial aid theyoffer from their own funds.

Former secretary of education William Bennett felt much the same way when hewrote,

increases in Xinancial aid have enabled colleges and universities toblithely raise their tuitions, conXident that Federal loan subsidies willhelp cushion the increase.

The new student loan reform will only create more money for the taking. In essencethe bill creates a cap on the price a student will have to pay that exists independentof the price of tuition. Consider the following example: College has a tuition of$20,000 this year. which you pay for entirely through student loans. You graduateand Xind a job paying $40,000 a year. The new reform legislation mandates that youwill pay no more than 10% of your discretionary income and only for 20 years. Nowsay College raises its tuition to $50,000 a year. The amount you pay in studentloans still cannot be raised above the 10% threshold and still may be forgiven after

A weekly publication by the College Republican National Committee. Copyright 2010.

http://www.nytimes.com/1987/02/18/opinion/our-greedy-colleges.html?pagewanted=1http://www.boston.com/news/globe/editorial_opinion/oped/articles/2005/02/10/making_college_affordable/http://www.nytimes.com/1987/02/18/opinion/our-greedy-colleges.html?pagewanted=1http://www.nytimes.com/1987/02/18/opinion/our-greedy-colleges.html?pagewanted=1http://www.boston.com/news/globe/editorial_opinion/oped/articles/2005/02/10/making_college_affordable/http://www.boston.com/news/globe/editorial_opinion/oped/articles/2005/02/10/making_college_affordable/

8/9/2019 Speak Up Memo April 5

3/3

20 years. To the student a $50,000 is relatively as affordable as a $20,000 tuitionprice tag.

But as colleges increase tuition to capture the newfound money, someone must footthe bill. That someone is of course the federal government as funded by the

taxpayers. So while low student loan payments may look enticing, a larger chunk offederal taxes taken out of your paycheck does not.

Fact 3:Creating the Problem Were Trying to Solve

One of the major goals of the health care reform bill was to bend the cost curve tomake health care more affordable. One of the main drivers of soaring prices hasbeen its removal from a transparent free market. For instance, on average patientspay only 23 cents for every dollar of medical expense incurred. The rest of the cost ishidden by government subsidies like Medicaid or insurance plans. But if consumersare shielded from the true costs of care there is less market pressure and incentivefor (1) them to control the consumption of health care and (2) providers to keepcosts affordable.

While we are desperately trying to solve the everincreasing cost of health care thegovernment is creating a similar debacle in the cost of higher education. Bymandating payment caps students wallets will begin to be separated from the costsof an education. But as they spend more freely, divorced from the worry of price,colleges will feel less constrained by market pressures to present a competitive cost.As Ezra Klein wrote about the cost of health care,

Imagine if people who touched a hot stove felt only a small fraction ofthe pain from the burn . . . It hurts enough that we would prefer it tostop, but the urgency is lost.

As reform is instituted and costs are artiXicially held down students and parents willbegin to lose their urgency for tuition control. Eventually we will be facing the samecost problems as in health care. It will be a problem of our own creation.

Bottom Line: Enjoy the extra beer money while you can...youll likely be paying itback in higher taxes for the rest of your life.

A weekly publication by the College Republican National Committee. Copyright 2010.