Mark Cuban: Hillary Clinton’s tuition plan proves she doesn’t understand economics

In by Poor RichardLeave a Comment

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Okay, that’s not a direct quote. But it was implied.

Like anyone with even a moderately good understanding of economics, billionaire Mark Cuban isn’t a big fan of Hillary’s college tuition proposal.

From The Hill:

Billionaire businessman Mark Cuban says Hillary Clinton’s plan to curb growing student-loan debt will actually make attending college more expensive.

“[Hillary’s plan] stands a better chance of increasing the amount of money students owe than decreasing it,” Cuban said on his Cyber Dust app on Friday.

“Just as easy money led to the real estate bubble a few years ago, the easier it is to borrow money for college the easier it is for colleges to raise tuition. Tuition keeps going up because no matter how high they raise it, students can still borrow more to pay for it,” Cuban continued.

Cuban, who stars on ABC’s “Shark Tank” and owns the Dallas Mavericks, has for years warned of a “student loan bubble.”
“At some point, it’s going to pop,” Cuban told Business Insider in March.

Clinton unveiled her $350 billion “New College Compact” last week, a plan that would guarantee tuition at public schools without forcing students to go into debt, cut interest rates on student loans and make community college free.

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Mr. Cuban is exactly right. It’s not the only reason tuition rates are skyrocketing, but it’s certainly one of the big reasons. We’ve written about this phenomenon before (and most certainly will again).

The following chart depicts college tuition inflation vs general market inflation:

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Now, some might look at this staggering graph and say, “Those poor students. We should really help them pay for college.” But you know why college tuition is rising so rapidly in relation to everything else? Largely because the government keeps “helping”. It is not moral or compassionate for a benevolent government to pay for the schooling of college students. It makes it more expensive.

Here’s an excerpt from a column written by economist Stephen Moore:

Imagine for a moment that there were no public subsidies for education, and parents paid for their kid’s schooling the way we pay for everything else – by shopping around and finding the best quality at the best price. What if there were no government-guaranteed student loans for college or other federal aid to underwrite tuition. Does anyone believe that colleges would cost $30,000 or $40,000 or $50,000? No way.

Imagine this scenario: Let’s say you were the president of a private university. And let’s say, for simplicity’s sake, that the applicants to your university generally had about $10,000 they could spend per year on tuition. Now, you could set your tuition at $10,000. This would make sense. But what if you knew that the government was handing out tuition grants and making huge student loans easily accessible and fully guaranteed? In other words, what if you knew that the students who had $10,000 in the bank to pay for their education, could, on top of that, easily get a loan or a grant for another $10k and pay you $20,000 per year? Wouldn’t you charge $20,000? Obviously you would. Obviously.

As we often say on this blog, when you subsidize something, you get more of it. It doesn’t matter what that “something” is. If you subsidize apples, you’ll get more apples. And if you subsidize prices, you’ll get higher prices.

In other words, it is impossible to lower costs by subsidizing them.