Economics is really simple. too bad no one learned it in college.

the more you subsidize college’s ability to raise tuition by giving out federal and state financial aid, the more they will raise tuition.

I have a nephew who is waiting to hear from schools right now, and he’s had at least 2 offers of 100% tuition discounts (there may be a third, but I’m not sure that a formal offer was made in that case, or if it was a “we can get this deal for you if you are interested”, which can mean almost anything). He’s also had at least one offer of 50% aid from a top-tier university, but he’s most interested in Stanford, and his family income is such that he won’t get any aid from them. (He is a senior in high school who has enough AP credits to be a junior at his local state university, and has spent 2 summers working in a research lab in the medical school where his father teaches, so he’s not an average kid.)

Hearing his stories makes me wonder what my eldest will decide to do. She’s even more unusual, and would certainly benefit from going to
school at a place like Stanford, but I can’t help thinking that it matters much less where she is an undergraduate than where she gets a PhD, and if I just gave her the $200K and she went to school someplace that gave her a free ride, she could invest the money and probably end up being better off…

But for talented students from low-income families, discounting means that more and more of the financial aid they need to attend college is going to less needy students—students who are often pursued by budget-conscious colleges because they are less needy.

This may be true, but the opposite seems just as likely. Consider:

Suppose each undergrad costs the school $15,000 per year. Sticker price is $35,000.

Student X is wealthy, and pays the full $35k in room and board. ($20k net gain)
Student Y is upper-middle class, and can afford the full $35k, but gets a $10k tuition discount. ($10k net gain)
Student Z is poor, and gets a full scholarship ($15k loss)

However, enrollment is price elastic to Student Y – suppose that by offering that discount, three Student Ys will enroll instead of just one at sticker price – a $30k gain instead of $20k, allowing you to enroll 2 Student Zs instead of just one (since there’s no such thing as Theoretically, Student Z deserves that tuition discount more than Student Y; in fact, that tuition discount allows Student Z to get the full scholarship.

Obviously, I made these numbers up in my head, and the situation may or may not reflect reality. But as long as schools try to enroll qualified students regardless of income, needy students will necessarily have to be subsidized by either the government, or by wealthier students. The point is, the total amount of the subsidy is exactly the same – the question is whether it’s better to distribute the costs across the whole of society (government subsidies), or just among those going to school (price discrimination). That issue is open to debate, and I honestly have no idea what the optimal solution is. I’m just saying that the tuition discounts for upper-middle class students is not quite the injustice it first appears to be.

The main effect of federal price controls on tuition will be to dramatically reduce the total number of poor students going to college, for the reasons I detailed above.