A much larger reason there is the total lack of price signals due to the fact that we use insurance to pay for everything, and health care providers are totally opaque about costs.
And this is caused by ... drumroll ... government subsidies for employer based health insurance.
By this you mean the fact that employer-provided health insurance premiums are not considered 'income' for taxation purposes? You're right, that is a market distortion. It should be gotten rid of or taxed progressively, as should the mortgage interest deduction. Unfortunately, none of the politicians who have signed King Grover Norquist's anti-tax pledge could vote for removing these subsidies.
When I went to college, the tuition was almost entirely subsidized by my state. Today it isn't significantly subsidized, so the cost to the student is wildly higher. Yet demand for seats at the UC is higher than ever. How can this square with the idea that subsidized loans caused the increase? We've been told for a generation that you'd better get a college education or you'll wind up living under a freeway bridge. The demand is huge, even though the price signals are staring everyone in the face. If there were no subsidized loans at all, I suspect that the UC would still be turning students away at the better campuses. The only change would be the economic strata of the student body, who would skew wealthier.
That might be true for the UC. But there aren't enough wealthier students to fill all the universities out there!
Perhaps we should also make student loans easier discharge in bankruptcy ...
It's probably true for most of the good state schools. If we removed all subsidy for higher education, then demand would drop some, but is that the kind of brave new world we want, where only the upper crust can afford to get the education they need to be useful in a modern economy? That sounds like a high speed elevator to third world status. A down elevator.
Student loans are already considered risky by lenders. If we let students declare bankruptcy when they have nothing to lose, I think you'd see a lot of it. The consequence would be a large increase in interest rates for private student loans to compensate lenders for the increased risk.
Education, like healthcare, is something that society needs, and that we seem to be paying too much for at the moment. Actually things might be changing- today's NY Times has an article about the annual growth of healthcare cost recently being the
lowest in fifty years. The pressures on colleges to hold the line on tuition are huge now, so maybe we're entering a new era? A lot of this must be due to the recession, but some people think there's more to it than that. Anyway, there are still big questions about how much of either service, education or healthcare, people should get, how it should be paid for, and how well the providers should be compensated. I hope whoever ultimately makes those decisions will do it on the basis of facts and rational discussion rather than politics and ideology.
