Report Shows Federal Student Loans Tied to Rising Cost of College
Who could have imagined such a thing is true? Besides the people who have been saying it for years, I mean.
Blake Neff reported at the Daily Caller.
Feds Discover Their Own Aid Is To Blame For Rising Tuition
A new report by the Federal Reserve Bank of New York has found that the massive investment in grants and student loans by the federal government is a major contributor to the unbridled growth in the cost of attending college.
College tuition rates have consistently risen faster than inflation for some 25 years. One theory for the rise, dubbed the “Bennett hypothesis,” was put forward by Ronald Reagan secretary of education William Bennett, who argued that hikes in government student aid simply gave colleges a free pass to hike tuition.
Now, the New York Fed’s research suggests there’s some merit to the idea, and that it means the government could be spending billions on education to no effect.
“While one would expect a student aid expansion to benefit recipients, the subsidized loan expansion could have been to their detriment, on net, because of the sizable and offsetting tuition effect,” the paper concludes.
On average, the report finds, each additional dollar in government financial aid translated to a tuition hike of about 65 percent. That indicates that the biggest direct beneficiaries of federal aid are schools, rather than the students hoping to attend them.
Feds Discover Their Own Aid Is To Blame For Rising Tuition (The Daily Caller)
Comments
It’s much worse than this. It’s not just federal money; anything which makes college more affordable also tends to make it more expensive.
The argument has been fairly widely understood at least since Adam Smith. Price is the ratio of demand to supply. Anything which increases demand also increases price. So anything which makes college more affordable to more people also increases college costs.
Now, this general relationship doesn’t say just how much more expensive college gets as more money is made available to consumers. So, the empirical .65 ratio is interesting. But it’s not obvious that it’s limited to “government financial aid”. Any financial aid should have the same effect; the money’s not smart enough to know where it came from.
The good news is that the ratio isn’t 1.00. If it was, aid would simply raise costs the exact same amount, and the final cost to the student would be unchanged. So financial aid does help students afford college; it’s just an expensive way to do it.