Why college aid isn’t making college more affordable for students

College grads have mostly waved goodbye to the extra aid Washington has sent their way in recent years. (AP Photo / Matt Rourke)

College grads have mostly waved goodbye to the extra aid Washington has sent their way in recent years. (AP Photo / Matt Rourke)

College grads have mostly waved goodbye to the extra aid Washington has sent their way in recent years. (AP Photo / Matt Rourke)

From the Department of Unintended But Widely Predicted Consequences (via the Wall Street Journal):

“The federal government has boosted aid to families in recent decades to make college more affordable. A new study from the New York Federal Reserve faults these policies for enabling college institutions to aggressively raise tuitions.

“The implication is the federal government is fueling a vicious cycle of higher prices and government aid that ultimately could cost taxpayers and price some Americans out of higher education, similar to what some economists contend happened with the housing bubble.” (links original throughout)

As the article goes on to say, this consequence has been predicted at least as far back as 1987, when then-Secretary of Education William Bennett warned of the aid-fueling-tuition-hikes phenomenon in a New York Times op-ed. “Higher education is not underfunded,” Bennett wrote back when tuition was actually a bargain compared to now. “It is under-accountable and under-productive. Our students deserve better than this. They deserve an education commensurate with the large sums paid by parents and taxpayers and donors.”

And the beat goes on, as these WSJ charts based on the Fed report’s data show:

WSJ tuition chart

It doesn’t take a conservative like Bennett to see the story those charts tell. Here’s Kevin Drum of Mother Jones:

“As you can see (in the charts), federal aid increased very modestly from 2000 to 2009. Then it went up sharply starting around 2010. If this aid were truly helping make college more affordable, out-of-pocket expenses for students (i.e., actual cash outlays net of loans and grants) would start to flatten out or even go down.

“But that hasn’t happened. You can lay a straightedge on the red line in the bottom chart. Basically, families received no net benefit from increased federal aid. Actual cash outlays rose at exactly the same rate as they had been rising before.”

Exactly. Every bit of increased aid has simply been consumed by higher costs, rather than reducing the amount students and their families have to pay. Nor do recent higher-ed budget cuts by state governments explain the long-term rise, because budgets weren’t cut during the entire time period.

Higher education, along with housing and health care, is one of the markets that has had the most government intervention over the past several decades. And, like housing and health care, it has developed in a way that shows how too many government interventions hurt the same low- and middle-income people they’re intended to help.

Reader Comments 0

84 comments
EastAtlanta
EastAtlanta

The federal government is a master at "unintended outcomes." We see the same thing in Georgia, doubled down, because of the HOPE Scholarships. I am dismayed that the Regents of the University System of Georgia approved yet another hefty increase in Georgia colleges tuition. Where is all this money going? I can only assume that most of it is for personnel wage increases. Just how much is a professor who teaches three classes a day worth??

AvgGeorgian
AvgGeorgian

Could someone please start using the language "failing colleges" that waste millions of dollars? 

Shar1
Shar1

The single biggest growth area on most college campuses is administration.


If the federal government revoked eligibility for public loans and grants for all colleges and universities that spent more than half the per-student cost of classroom instruction on administrative costs, you would see a fast decline in those larded layers.


Similarly, it is past time to revoke federal aid and tax exemption to schools that have inflated per-student allocations for athletic programs, or that fail to graduate their athletes at the same rate as general undergrad population, or that ignore faculty pay scales when compensating coaches.  It's past time to reign in these programs, the great majority of which lose significant money even as they warp decision-making from academic priorities to fund raising.

87GaDawg
87GaDawg

Sigh.  I have an 8th and a 7th grader.  You people are making me think I'll have to pay for their college education (assuming they go) myself.  And the price is going up.  And there are more and more people going to college so it is tougher to get admitted.

LilBarryBailout
LilBarryBailout

@87GaDawg

You only have to pay if you're a hardworking American who plays by the rules.

If you goof off and spend every dime you make, then your kids can go for free or at most have to repay a fraction of their Obamaloan and then stick the tax payer with the majority of the debt.

If you don't believe me, run your numbers through an "Estimated Family Contribution" calculator online.

AvgGeorgian
AvgGeorgian

@LilBarryBailout @87GaDawg


LilB - Do you think that people who take advantage of government programs as they live in poverty are choosing not to take advantage of high paying jobs ?

MarkVV
MarkVV

The cost of college education is increasing, and demand plays some role, but it is only one of the factors in play. For instance, there is the high cost of instrumentation in technical colleges, and many other things also go up in cost.

I have no doubt that the college administrators take into account what the potential students can afford, but I think that it is an irresponsible generalized accusation to say that they go “on a spending spree” because of that. Some people may call a fitness center or a culture center a not needed luxury; I do not.  College education should provide all round development, not just cramming of academics into the heads of students.

What I find reprehensible is when the fact that the assistance to people who want education by student loans may have some effect on the cost of tuition is used to attack that assistance.

The same with medical insurance. The increased demand resulting from the subsidies to people who could not afford it undoubtedly has some effect on the costs. But there are also other factors, for instance, the high cost of new medical technology and of new drugs. To use the factor of the demand to attack Obamacare is, in my view, unconscionable. In both cases, education and healthcare, the attention should be given to all the causes of rising costs and ways to reduce them, rather than to the programs helping people to participate.

stogiefogey
stogiefogey

Colleges and universities have to keep raising their prices to pay crazy salaries. Dozens of college presidents and coaches earn more than $1 million a year, including our own Coach Richt. Nick Saban makes >$5 million.

RichardKPE
RichardKPE

@stogiefogey 100% wrong.  Nick Saban's salary is funded by donations to the athletic department and subsidized by the Alabama taxpayers (Auburn fans are rightfully peeved).  President salaries are a drop in the bucket as far as budgets go.


Professor salaries are mostly low.  They get most of their money through research grants by private companies.

stogiefogey
stogiefogey

@RichardKPE @stogiefogey  "...and subsidized by the Alabama taxpayers..."

Great, so you're not paying his salary through tuition but instead through taxes. Now that makes it all better. lol 

LilBarryBailout
LilBarryBailout

Bottom line:  As the federal government has entangled itself in education, cost and accumulated student debt have risen dramatically.  And the economists say that it's the federal interference that is to blame.

prarrd
prarrd

Black students get their college tuition FOR 50% OFF because of their SKIN COLOR, yet they never cry racism about that. Google up about Berkeley's Diversity Cookie sale. 

Kyle_Wingfield
Kyle_Wingfield moderator

@prarrd I'm unaware of any race-conscious tuition pricing. The cookie sale you mentioned was, as far as I know, more related to admissions policies -- who gets in, not what they pay.

JFMcNamara
JFMcNamara

I'm surprised "Free Market Republicans" aren't attacking this article. The only thing that drives prices up is demand.  Its basic economics. The government didn't create the demand, they tried to help people with the demand get access easier.  For example, If the government subsidized Brussel sprouts to the point they were abundant, sales and prices wouldn't go up because Brussel sprouts are disgusting and no one wants them. 


Health Care Costs are increasing.  You know why? Demand.  The housing market spiraled out of control.  It wasn't the government.  It was the demand coupled with cheap credit from banks using credit default swaps. In the banking case, it was the REMOVAL of government intervention that cause the problems.


Now, I will agree that the government should attack these problems by increasing supply, but to insinuate that government intervention is the reason for higher costs is nonsense. The costs were already rising and were going to rise anyway. Instead of simplistic "government = bad" arguments in major newspapers, we need both the analysis (which was pretty good) and a solution that at a Republican might implement.  In short, what should we do Kyle?  That's the punch line I was waiting for.

LilBarryBailout
LilBarryBailout

@JFMcNamara

Free market Republicans (shorter: Real Americans) don't attack basic, well understood economic principles.

Much of the demand only exists because leftists are doling out huge amounts of tax payer money to people who won't pay it back, enriching greedy leftist academics in the process.


Claver
Claver

@Kyle_Wingfield @JFMcNamara "Why can't others do the same?"  A very good question for our Board of Regents.  They approved another tuition hike just a few months ago.  Do they perform any type of hard independent and in depth review of costs?

Kyle_Wingfield
Kyle_Wingfield moderator

@JFMcNamara You're leaving out one key element: The subsidies, which drive up prices more quickly than if the money were available to purchase other goods and services. Colleges know every bit of those subsidies have to be spent on higher education, and they set their prices accordingly. That distorts the market.

Health care is a different animal, because there the subsidized care is associated with losses (that is, providers lose money on those with Medicaid and Medicare). That's a big driver of prices (not to be confused with costs) in that industry, as privately insured people pay higher prices to make up for the losses from the publicly insured.

In the long run, the solution requires a combination of things. First, providers (colleges) must be more economical to hold their costs, and thus their prices, down. I don't think anyone disputes that colleges have gone on a spending spree (on plush dorms, fitness centers, etc. that have nothing to do with academics, and in many cases on administration). It is very interesting to follow two examples being set by Republican governors and ex-governors. In Texas, colleges have met Rick Perry's challenge to offer four-year degrees with tuition costing a total of $10,000. In Indiana, ex-Gov. Mitch Daniels, now president of Purdue, has frozen tuition for three straight years. Why can't others do the same?

Second, students have to be smarter about their decisions. The plentiful availability of easy student loans (even easier credit than there was for housing in the mid-2000s) has enabled students to make poor decisions about borrowing. But they also have to realize that alternatives such as technical colleges can offer just as good a future at a much lower cost. Even a little re-balancing could take some of the steam out of the tuition-growth machine.

Third, it is time for a serious discussion about whether government should continue to offer so many subsidies for so many things, or whether it should go back to the old Milton Friedman idea of a "negative income tax"/Hayek idea of a "minimum income" -- in which government redistribution (which is never going to disappear completely) looks more like a block grant which the recipient can use for whatever purpose. But then the recipient is on the hook for making the right decisions with it. I don't know if GOP candidates are ready for that. But that kind of mechanism would move away from the problem with subsidies I outlined at the beginning of this comment (i.e. about a million words ago ...)

TheRealJDW
TheRealJDW

I think you need to work on the chart reading...correct in 2000-2009 aid increased almost zero however tuition increased at 10%+ a year.  Then from 2009 to 2015 aid increased by around 40% and the impact on tuition. It increased…wait for it…exactly the same 10%+ a year it increased in 2000-2009.

Read the chart Kyle, the increase in tuition is the same regardless of the increase in aid….duh.

Kyle_Wingfield
Kyle_Wingfield moderator

@TheRealJDW Only the first aid measure was flat during 2000-09. Pell grants went up by ~50% during those years and Stafford loans more than 20%.

In any case, the point seems to have eluded you, that increases in aid have been swallowed up by increases in tuition. If you want to argue the causality, take it up with the Fed's researchers; that was their conclusion.

heezback
heezback

When the federal government pays for or subsidizes something, the cost goes up.  The largess of the beast, combined with reams of anecdotal evidence, signals to all providers and vendors that they can attempt to get away with robbery in the broad daylight and in the face of the federal bureaucracy.  Think about it; the never ending examples.  For instance, the $300 screwdrivers; $700 toilet seats; $25 aspirins; $3000 ambulance rides; grants to study the most ridiculous; cost overruns on myriad federal projects; and on and on.... 

LilBarryBailout
LilBarryBailout

@heezback

Huge pots of tax payer money does tend to attract flies (and humans with their hands out).

MarkVV
MarkVV

@heezback As usual with this kind of worldview, it is always the government that is guilty of everything. I wonder who charged those prices for “the $300 screwdrivers; $700 toilet seats; $25 aspirins; $3000 ambulance rides,” etc. Was it not the private sector? Yes, we should complain and point out when the government does not use a proper vigilance over expenses, but let’s not forget who was the primary offender. Same with cost overruns on federal projects. Who did the “overrunning?”

LilBarryBailout
LilBarryBailout

@MarkVV @heezback

Government is responsible for wisely using the resources they take from tax paying Americans.

If you are aware of contracting fraud that has gone un-prosecuted, you should blow the whistle.  You might get a share of the recovered ill-gotten gains.

heezback
heezback

@LilBarryBailout @heezback We (humans collectively) can be easily drawn to the honey pot, so to speak.  Some of us, exposed and raised on a somewhat moral/ethical foundation, are more equipped to fight off the temptation.  I struggle to keep my footing sometimes, but try to do my best.

heezback
heezback

@MarkVV @heezback If there were a Gold Medal for missing the point...well...

The more appropriate question to be asked, based upon my premise, is who authorized payment and why did they either not pay attention or not give a damn?

M H Smith
M H Smith

Considering the age of communications in which we now live it is hard to reason why brick and mortar schools/institutions, beyond junior high school with few exceptions for hands-on things like labs, have a reason to remain. Part of the answer to driving down the cost of educations is in use right this moment on this blog. The Internet is probably the most efficient means to deliver education, particularly at the higher the levels. One professor can teach one class to an unlimited number of students. Students can collaborative in unlimited numbers of groups to aid the process in obtaining their degrees. 

Another part is for students to provide community services in lieu of repaying their education loans. National service is a means to achieve several things at once: Higher education on the one hand and a higher quality of life in the communities that are served in this country. 


But I know, something in exchange for something makes too much sense to ever contemplate using it to replace "FREE"!

Hedley_Lammar
Hedley_Lammar

@m h smith The brick and mortar days of higher education are over.


Where do you shop these days....Amazon ? or Sears ?

M H Smith
M H Smith

@Hedley_Lammar @m h smith 

In fact, we can cut our property taxes and education spending tremendously if people would get with the program and toss the traditional education ideas. 

It really is possible to do more with less.

Online Public Schools

 In 1999, we set out to answer a call. It was a call voiced by a growing number of parents whose children's needs were not being met by traditional education models. Their children were bored by the pace of the traditional classroom, left behind by the pace of the classroom, or just getting lost in the shuffle. While traditional brick and mortar schools work for many children, they restrict many others for a variety of reasons.

http://www.k12.com/about-k12.html

Kyle_Wingfield
Kyle_Wingfield moderator

@m h smith I believe two things about online education over the next 20 years. First, that we will not see a majority or even plurality of kids enrolling in virtual-only schools. And second, that we will see a sizable majority of kids (at least in middle and high schools) taking as many as half of their classes in a virtual/digital format.

Hybrid schooling is the future.

AvgGeorgian
AvgGeorgian

@Kyle_Wingfield @m h smith


Haha. You are stuck in the past if you think that defeating an online  U.S. History test is the sort of outcome that is valuable. "Earning" bogus credits in lieu of experiential learning is a cheap babysitter and cash cow to the provider. If you can't teach yourself U.S. History and apply it collaboratively to solve a problem, you are out of luck these days. I like this virtual space to share and challenge ideas, but I think Kyle is the only one getting paid except maybe Edu, Gwinn, or name of the week). And Kyle aint getting rich.

bu2
bu2

@Kyle_Wingfield @m h smith 


There is vast waste in facilities on college campuses without considering on-line classes.  Every college has to have their trophy building and the costs that go with it while many classrooms go unused even at peak times.

MarkVV
MarkVV

Perhaps we should apply the reasoning in the quoted WSJ article elsewhere as well. For instance:

If we help people get medical, insurance, they will use medical care more, and the demand will cause the cost of the medical care to rise. Therefore, do not provide that help.

 Oh shucks, I forgot, this is an argument used by the conservatives already.

Kyle_Wingfield
Kyle_Wingfield moderator

@MarkVV And don't try to use your mischaracterization of what I've written about Obamacare's costs.

heezback
heezback

@MarkVV

Seems you are confusing access to medical care with the cost of same.  Your premise that anyone suggests demand alone will cause the cost to rise is patently silly.  Any chance you can cite the "conservative" argument relative to your assertion?  I will check back later this afternoon.

MarkVV
MarkVV

@heezback @MarkVV You should have used your characterization of this suggestion when it was used numerous times in the debates about Obamacare. Go and look for yourself. And nowhere in my comment I used the word "alone" ("demand alone will cause the cost to rise"), so don't try to use your mischaracterization of what I have written..

MarkVV
MarkVV

If higher education costs were not such a serious matter, the quoted WSJ’s argument would be a reason for a good laugh. It is, of course, an example of the classical logical fallacy: If Y follows X, X is the cause of Y. No need to provide some evidence of the causality.

 

Claver
Claver

@MarkVV Are you trying to suggest that my rooster didn't make the sun come up this morning?

Hedley_Lammar
Hedley_Lammar

@Claver @MarkVV LOL


Obviously he did.


He is still alive isn't he ? And the sun did in fact come up.


So the two MUST be related. 

LilBarryBailout
LilBarryBailout

@MarkVV

Yep, just continue to ignore the actual science on this matter, which is settled.

Denier.