DOES MORE FINANCIAL AID CAUSE COLLEGES
TO INCREASE THE COST OF ATTENDING
Most colleges across the nation has once again increased their tuition on the
average of 6%. This percentage increase is well above the national inflation rate
of a little above 1%. Many college presidents attributes tuition hike in part to
cutbacks of federal and state governmental support of a postsecondary
education. However, according to the College Board, since 1982 money
available through Federal student aid programs has increased every single year,
let alone the availability of educational tax credits and deductions.
In 1978, subsidies became available to a greatly expanded number of students.
Every year since then, college tuitions has risen year after year at a rate that
exceeded normal inflation. Federal student aid policies doesn’t cause college
price inflation directly, however it does help make it possible.
Twenty-five years ago, Secretary of Education William J. Bennett argued in a
New York Times essay called "Our Greedy Colleges" that “increases in
financial aid in recent years have enabled colleges and universities blithely
to raise their tuitions, confident that federal loan subsidies would help
cushion the increase.” Many college scholars over the last twenty-five years
has disputed Secretary Bennett’s hypothesis and concluded the theory is not
justified.
There is no disputing financial aid can improve college affordability for many
students. One of the biggest reasons tuition has increased faster than inflation is
because of competition among colleges for students. When financial aid is
increased, the extra revenue can give many colleges and universities to ability to
hirer better professors and offer more gift aid to attract high academic students.
Increases in tuition also gives colleges the ability to build state-of-the-art facilities,
(laboratories, libraries, computer centers, etc.). There has been several colleges
across the country, over the last several years, that have tried to keep tuition at a
reasonable level. However, many have fallen behind in attracting high quality
students and have been forced to raise tuition in order to stay competitive.
A portion of federal financial aid is geared toward helping low income students.
An example of this type of aid is the Pell Grant. The New America
Foundation’s Jason Delisle said in an article for Ed Money Watch, “Pell Grants
are overwhelmingly awarded to the lowest-income families.” But federallysubsidized Stafford Loans are a different story. About a quarter of all
Subsidized Stafford loans made to dependent undergraduate students are
provided to families with gross incomes of $80,000 and above. About 13
percent of the loans are made to dependent borrowers from families with
incomes of $100,000 and higher. While the needs-based formula that sets
eligibility for Subsidized Stafford loans takes total family income into
account, it also adjusts for cost of attendance. This means that middle and
upper income borrowers can also qualify for these loans if they attend
institutions with sufficiently high costs. It’s clear from the data that this
provision means that Subsidized Stafford loans aren’t targeted to just
students from low income families.”
Arthur Hauptman, a public policy consultant specializing in higher education
finance, says, “Increased funding for Pell Grants can hurt overall degree
completion rates. The Pell Grant has not had much effect on tuition levels
in part because the amount of the awards does not vary with where a
student enrolls. Institutions cannot affect how much a student receives and
the institutions that charge the most enroll the fewest Pell Grant recipients.
By contrast, despite the argument that there is no proven causal
relationship between aid and price increases, there are several good
reasons to believe that student loans have been a factor in the rising cost
of a college education. Tuition has increased by twice the inflation rate for
the past three decades while annual loan volume has increased tenfold in
constant dollars.”
Many of our politicians feel increasing financial aid is the best way of keeping
college costs affordable for the vast student population. These same politicians
also feel raising the minimum wage will increase the standard of living for low
income earners. However, when employers are forced to increase wages, they
have to cover the increase cost of doing business by increasing the cost of their
goods or services. It is a ever increasing circle.
George Leef, the director of research for the John William Pope Center for
Higher Education Policy said, “When our politicians keep increasing financial aid
availability, (in order to address college affordable), the more costly it becomes.
In my opinion, Pell Grants, SEOG (Supplemental Educational Opportunity
Grants) and other state and federal need based grants do not cause or contribute
to the increase in tuition inflation increases. The reason is because most
students attending college today will not qualify for these monies. However, the
availability and increases in financial aid loans and tax credits have given
postsecondary institutions a reason to increase tuitions, because they know that
Federal loan subsidies and tax credit would help cushion the increase.