Rising Federal Aid Is Driving Up Tuition

by Dave Blount | July 13, 2015 2:56 pm

Who to blame for tuition skyrocketing even as the quality of education drastically declines? Who else? Big Government:

A new explosive study has found a direct link between expanded federal aid and rising tuition rates among the nation’s colleges and universities, re-energizing a debate over the escalating cost of post-secondary education for millions of Americans.

Critics say the findings prove a long-held theory that current aid policy is not helping, and may be actually hurting families who are struggling more than ever to afford college, and paying off a mountain of debt for the privilege. …

The study, conducted by researchers for the Federal Reserve Bank of New York, found that for every new dollar made available in federally subsidized student loans, schools – particularly expensive, private four-year institutions – [raised] their rates by 65 cents.

Furthermore, for every dollar increased for federal Pell Grants and unsubsidized loans, schools [raised] their rates 55 cents.

“While one would expect this (aid) expansion to improve the recipients’ welfare, for example, through lower interest payments and a relaxation of borrowing constraints, the subsidized loan expansion possibly resulted in lower welfare because of the sizable and offsetting tuition effect,” wrote the study’s authors, Davis Lucca and Karen Shen of the New York Fed, and Taylor Nadauld of Brigham Young University.

Political science has its laws, just like natural sciences. One of them is that once government has reached optimal size and scope, expanding it further always results in lower welfare. Ours reached optimal size and scope before the Civil War, and has been expanding explosively ever since. Given our technological achievements, imagine the standard of living we would enjoy today if we still had limited government.

“It’s a hopeless spiral,” said [Tom Lindsay, director of the Center for Higher Education at the Texas Public Policy Institute], pointing to the $120 billion in student loans taken out in 2012 alone – 90 percent of it federally subsidized – while the average tuition for a four-year school has gone up 46 percent in the last decade. The study’s authors compared the boom with the federal mortgage and housing bubble that helped bring about the 2008 financial collapse.

Until the next collapse, people won’t revolt no matter how excessive tuition becomes, so long as the costs are diffused through government-run student loans that may or may not be paid back.

On tips from J and DinaRehn. Cross-posted at Moonbattery.