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A College Primer With Schiffian Logic

Rick Green

November 17, 2009

Not long ago I got into it with the YouTube investment wizard and U.S. Senate candidate Peter Schiff over college loans and the ever-increasing price of tuition.

The impish Schiff who predicted the current economic collapse hit me with a simple explanation to a question I cannot find an answer for: It's the government's fault for handing out so much money through loans and grants.

No government bailout, Schiffian logic goes, no inflated tuition.

"College should not be so expensive. It's the biggest recession since the Great Depression. How could college prices go up?" Schiff asked me when we talked after our dust-up on WFSB's "Face the State."

I didn't have a reply. I still believe that we need more college-educated workers for the new economy, whenever we figure out what that is. But it's worth listening to Schiff if only because every other explanation is so lame.

The fact that I couldn't get a couple of prominent university leaders to talk didn't help. The presidents of Wesleyan and UConn wouldn't touch this topic when I requested a chat.

"Unfortunately, it is one of those things that has a grain of truth to it," said Patrick Callan, president of the National Center for Public and Higher Education, when I bounced Shiff's argument off him. "We used to deny it was even a good question. We don't do that anymore."

Schiff, as his zealous followers can recite, believes that the free market is the antidote for nearly everything. I don't quite agree, but I don't have a BMW with a driver, either.

"If kids could not borrow money to go to school, they could not pay these prices. Nobody would be going," Schiff said. "Would the colleges really just shut down and say we have no business?"

"Even if they did go bankrupt, somebody else would come in and buy that university and operate it at a much lower cost," he explained. "Colleges will react quickly to a drop in enrollment. What they are going to have to do is go over their books and figure out who can we cut and how can we streamline this process. You should probably have minimal staff at a university. It should be very, very efficient."

Still, I wonder whether all this would yield a lot more schools of business and graduates who make millions of dollars off derivatives and not nearly enough comparative literature programs and stem cell researchers.

When I called Sandy Baum, a consultant to the College Board, she was quick to tell me that Schiff's antidote would be a disaster, pushing college out of reach for tens of thousands of students.

"If we didn't have [government] financial aid, low and moderate income people simply would not have the money to pay," said Baum, an economist and expert on the cost of higher education. "To think of it as supply and demand, that's not the way it works."

"It's possible that sticker prices would fall at some institutions. But others would probably end up raising their prices in order to increase their financial aid to enable students who aren't wealthy to enroll. Some colleges would probably go out of business," Baum said. "But the decline in the supply of seats would certainly not help bring prices down."

Don Klepper-Smith, an economist who advises the governor, said I am missing the larger point. It's not a question of whether government should support higher education it's whether we are getting our money's worth. We might not be.

"Show me the return on investment. Show me the skill-set we are producing," said Klepper-Smith. "Many of our college institutions have lost sight of the fact that a job prospect is one of the deliverables due at the end of a college education."

Which makes me think that even if Schiff is some kind of libertarian savant, he's got a point. Would it be so bad if colleges had to face the free market and show that graduates will be able to at least pay off the debt that comes with a diploma?

Schiff, the genius investor who communicates with his followers via video blog, told me it really isn't that complicated.

"I'm sure I could run a university at a profit," he said. "How hard could that be?"

Reprinted with permission of the Hartford Courant. To view other stories on this topic, search the Hartford Courant Archives at http://www.courant.com/archives.
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