More student aid, higher college costs

President Obama wants to expand Pell Grants, the college aid program for low-income students, in hopes of making college more affordable. But the move will fuel tuition inflation, argues Neil McCluskey on Cato @ Liberty.

On the New York Times’ Room for Debate blog, Richard Vedder, an economics professor who directs the Center of College Affordability and Productivity, and Arthur M. Hauptman, an education and public policy consultant, agree that colleges respond to increases in student aid by charging more.

“Federal student financial assistance is more a cause than a consequence of rising college costs,” Vedder says.

Work done at my research center reinforces findings of others that exploding student loan programs have contributed to higher tuition charges, and if Pell Grants grow more inclusive and generous, the same effect will occur with them.

Hauptman compares student aid to easy mortgages.

. . . just as one couldn’t imagine house prices being as high as they now are if mortgage financing were not available, it is difficult to believe that colleges and universities could have increased their charges so rapidly over time without the ready availability of students’ ability to borrow.

Pell Grants aren’t to blame, Hauptman writes, because recipients tend to enroll in the least-expensive colleges. However, he predicts that if low-income students get more federal aid, colleges will provide less, shifting scholarship help to middle-class students.

Most Pell recipients do not earn a college degree. To raise the number of college graduates, K-12 schools have to do a better job of teaching the reading, writing, math and analytical skills required to take advantage of higher education opportunities.

About Joanne


  1. Neil McCluskey should state what he really means: the last thing people like the Cato Institute, a supposed “think tank”, want, is an educated populace.

    Here in Texas the great plan back in 2003 was to deregulate tuition cost in favor of competition. Seven years later college is all but unaffordable for the great unwashed masses.

    All the better to supply the corporations that pay the Cato Institute bills with a supply of docile, uneducated and limited options workers.

  2. L. C. Burgundy says:

    LOL. A Democratic brownshirt like MiT accusing Cato of wanting the educational system to produce docile and uneducated people. Shine on, you crazy diamond.

  3. It was several years ago that I began to wonder if student financial aid were not pushing college costs, and if easy financial aid was working as planned.

    When I began college in 1961 at the University of Missouri, the conventional wisdom was that a frugal student could get through a year of college on about $1000. That’s room, board, tuition, books, and very little more. I think that is about what I spent each year. At that time I think minimum wage was about $1.60 an hour. Students who put in 500 hours of work in the summer at $2.00 an hour, above minimum wage, but not out of reach for many students, and who carefully saved their money, could just about pay for their next year of school. I didn’t do it that way. I borrowed and went summers to finish up a year early. But I believe a lot of students did. The net result was that college was attainable for a wide range of students. Not easy, but attainable.

    Now days the math comes out a little different. The 500 hours of work in the summer can’t change too much. At $10 an hour a student falls short of paying for a year of college. I’m not sure a young person can even live on that, let alone budget for a year of college. In other words, you can’t take income and outgo of a college student’s money from 1960 and multiply by an inflation factor and get the figures for today’s student.

    So who is better off, the student of today or the student of 50 years ago? The student who flunked out 50 years ago was likely to walk away from college with little or no debt. The student who flunks out today is likely to walk away from college with a substantial student loan debt, comparable to a car loan perhaps.

    Have we made progress in 50 years? I don’t know. I think it’s true today that practically any potential student today has a chance at college. He won’t be decisively held back by limited finances. But I don’t think it was a whole lot different in the 1960’s. And I strongly suspect that making financial aid even easier to get would cause more harm than good. Maybe easy financial aid does more for Wal Mart in providing a steady stream of capable workers at low cost, and for colleges in bidding up the price of what they have to sell, than it does for students.

  4. How about making Pell and other grants and loans dependent on the student taking non-remedial courses. In other words, if you aren’t ready for college, you have to enroll in a local community or technical college. We shouldn’t be paying college prices for high school courses.

  5. L.C. Burgundy,

    A brown shirt? Where have you been? Comparing people to Nazis is just not considered nice anymore.

    But then again I guess it could be worse. You could have called my a life-sucking, self-centered puppet of the corporations.

    At least MY master is not the almight dollar. When YOU raise that right hand to salute be sure to substitute the names of the AIG, Goldman-Sachs, and Bank of America CEOs

  6. Tom in GA says:

    There’s supposed to be a difference between an educated-populace and a college-educated populace. Thanks to the way the teacher’s unions and left-wing political leaders have allowed public school education to be nearly useless, you have to go to college to actually learn anything. Of course this just makes sure we waste more money because the people making the decisions aren’t the ones who suffer…

  7. tim-10-ber says:

    Mike in Texas — your master is one who puts adults first and not the kids…seems worse to me…we pay your salary and getting nothing in return….hmmm…the taxpayer gets the short end of that stick in multiple ways…dropouts, jail costs, remedial classes, need I say more?

    Linda — great idea — if the government educators cannot have the kids ready for college, then the taxpayers should not pay again to clean up their messes…

  8. Michael E. Lopez says:

    This SEEMS like a no-brainer.

    Joanie wants to go to Havisham University.

    Her economic analysis of the situation, weighing the benefits of the education and her desire to spend four years in Bookistan doing the sorts of things that college students do, is such that she’s willing to pay $20,000 a year plus interest on that $20,000 (let’s call that value “X”) for the experience.

    Havishman could charge $20,000, and Joanie would attend.
    If they charge $21,000, Joanie will not attend.
    (Let us assume that Joanie is emblematic of the profit-maximization point of the price-demand curve.)

    Along comes the Government. Government says, “We’ll subsidize education, Joanie! We’ll subsidize your student loans. We’ll pay the interest.”

    Yet remember… Joanie is already willing to pay $20,000 PLUS X of her own money to attend. This shouldn’t change.

    Havisham knows this, so they raise their tuition: where once they charged $20,000, now they charge $20,000 + X. (perhaps less some minor amount to account for the additional taxes Joanie may or may not be paying as a result of the governmental subsidy of student loans.) Joanie ends up paying (i.e., borrowing) the same amount of money, but the government now pays interest on $20,000 +X.

    Joanie still attends Havisham, despite the increase in tuition.

    It works the same with grants. If the government gives a tuition grant of $10,000, then Havisham has every incentive to raise tuition exactly $10,000. The students will have the same financial incentives to attend as they did before, and Joanie will continue to be at the apex of the price-demand curve.

    I’m not an economist, and I’ve not a lot of training in economics. But this seems commonsensical.

    Am I missing anything?

  9. The simple economic fact is that increasing the amount of money available to procure a product without increasing the supply will increase the price. This is Econ 101. Why are people continuously surprised by this?

  10. People are surprised because there’s this delightful illusion that you’re getting something for nothing or at least that you’re sticking other people with part of the bill. That’s pretty cool, isn’t it?

    When the truth sinks in there’s a sinking feeling to accompany it. That’s the realization that far from screwing someone else to your benefit you’ve been screwed to someone else’s benefit.

    What you’re missing Michael is the temptation of getting something for nothing. That has a considerable although transitory value. It’s also a great way to manipulate people.

  11. Tim-10-ber,

    we pay your salary and getting nothing in return

    How typical of the “reform” crowd to start throwing insults. Can’t say I’m surprised

    Let me guess, the evil teachers’ unions? Is that the boogey man in your closet?

    You say you get nothing in return, but yet the US is considered 99-100%, check out the CIA Fact Book for yourself.

  12. Let’s just see who likes to throw insults around:

    > Neil McCluskey should state what he really means: the last thing people like the Cato Institute, a supposed “think tank”, want, is an educated populace.

    Pot, kettle, black Mike. You don’t like insults being thrown around then don’t start the ball rolling.

  13. In France, not only medical students attend medical schools for free. The government even pays them a stipend for while they are going to school. The doctors graduate debt-free and there will less pressure for doctors to charge patients $$$$ and their working environment is more relaxed too. And don’t think about practicing medicine in France if you aren’t a graduate of one of French’s medical schools.


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