President Obama signed legislation Aug. 9 to restore lower interest rates for college student loans. But don't expect college tuition to go down or student debt to fall anytime soon. Instead, both tuition and student debt will maintain their steady spiral upward as long as the federal government continues to perpetuate the higher education accreditation cartel. In a free market, if demand for something increases, prices will rise, signaling to entrepreneurs that profits can be made by entering that market. After more firms have entered, supply increases, prices fall, and only the best products and service providers are left serving customers.
However, if demand rises in a market where government restricts entry, prices will only go up and up. Government may then be forced to start subsidizing that market, if voters feel the product or service is unaffordable. But then firms keep raising prices as demand and government subsidies soar upward. The product or service in question cannot become more affordable until government restrictions on market entry and subsidies for consumers are removed.
This latter scenario is exactly what is happening in higher education today. Americans know that a college education is essential for obtaining a high-paying career, so demand keeps increasing. But the nation's six regional higher education accreditation agencies have restricted entry to the market, limiting the supply of degree granters and thus forcing tuition costs higher. When voters predictably demanded help to pay for these rising costs, the federal government responded with a massive program of subsidized student loans. Unfortunately, not only do these enable existing higher education institutions to keep raising tuition, they have also left a generation of Americans deeply in debt.
Entrepreneurs are trying to enter the higher education market, but the oligopoly of regional accreditors stand in the college-house door. At the elite end of the market spectrum, former Snapfish President Ben Nelson wants to displace Harvard as "the world's most valuable brand." Nelson promises to, offering a highly-selective, top-end college degree, at half the cost of existing top-tier universities. "The existing model doesn't work," Nelson recently told the Wall Street Journal. "The market was begging for a solution."
At the other end of the spectrum, Altius Education formed a partnership with Ohio's Tiffin University, to offer community college associate degrees through the online school Ivy Bridge. Depending on a student's grade point average, Ivy Bridge graduates could then automatically transfer to one of over 150 traditional four-year institutions, including schools like Arizona State and George Mason University. Problem is, Ivy Bridge no longer exists and Minerva doesn't exist yet. Ivy Bridge was killed last week by the regional accreditor for Ohio, the Higher Learning Commission, and Minerva has yet to get its accreditation approved by California's regional accreditor, the Western Association of Schools and Colleges.
While regional accreditors began as voluntary private associations over 100 years ago, as the federal government has gotten more involved in higher education funding, the accreditors have become government-empowered cartel enforcers. If Congress really wanted to lower tuition costs, they could jumpstart innovation in the higher education sector by cutting the accreditation agencies out of the federal aid process altogether.