Student aid leads to tuition hikes

A large fraction of the rise in college tuition is explained by the rise in financial aid, concludes a new NBER paper.

The researchers’ model supported the Bennett hypothesis, which states that colleges will raise tuition to capture increased student aid. (It’s named after William Bennett, Reagan’s Education secretary.)

The Bennett hypothesis “fully explains all the tuition increases between 1987 and 2010, according to the study,” reports Reason.

Increasing subsidies doesn’t increase enrollment because the aid is canceled out by tuition hikes, the study found. Instead, students borrow more, leading to more loan defaults down the road.

A study by the New York Federal Reserve also found linked student aid to rising tuition.

Here’s The Atlantic‘s round-up of proposals to make college affordable from Hillary Clinton, Bernie Sanders and Marco Rubio.

 

 

Study: Federal aid fuels tuition hikes

Federal grants and student loans have fueled the rise in college tuition, according to a new report by the Federal Reserve Bank of New York.

Each additional dollar in government aid led to a tuition hike of about 65 cents, the report found. “The numbers were not quite as grim for Pell Grants, where 55 cents of each additional dollar turned into higher tuition, but it was even worse for subsidized student loans (the most common type of aid), where every dollar loaned translates to a 70-cent tuition hike,” writes Blake Neff in the Daily Caller.

This is consistent with earlier research, writes Hans Bader, who’s got lots of links.

Increased regulation also has driven up college costs, argues Bader. Obama’s Education Department has “flooded the nation’s schools with new rules that have never been properly vetted or codified,” college presidents complained recently.

Wastefully run colleges can now increase tuition even faster, at taxpayer expense, as a result of the Obama administration’s recent expansions of the Pay As You Earn program. The Pay As You Earn program limits borrowers’ monthly debt payments to 10 percent of their discretionary income. The balance of their loans is then forgiven after 20 years—or just 10 years, if the borrower works for the government or a nonprofit. It will cost taxpayers a lot, while doing nothing for most student borrowers (who will experience tuition increases as a result), and it will favor imprudent borrowers over prudent borrowers.

. . . (Borrowers) will pay the same amount over 20 years (or 10 years) no matter how much their high-priced college charged in tuition—eliminating any incentive for such colleges to keep costs under control, or to keep their tuition from escalating at a dramatic rate.

Cato’s Neal McCluskey links to eight studies on the inflationary effect of student aid.

Obama’s higher ed legacy includes nearly doubling Pell funding for low- and moderate-income students and more than tripling tuition tax credits for the middle class.

Universal college, but what about readiness?

President Obama wants to make the first two years of college just like high school. Free, that is.

Robert Fusco teaches division in a remedial math class at a New Jersey community college. (Photo by Elizabeth Redden)

Robert Fusco teaches division in a remedial math class at a New Jersey community college. (Photo by Elizabeth Redden)

“It seems that we can’t fix our high schools, which already send hundreds of thousands of graduates into remedial courses at community (and other) colleges,” writes Checker Finn. Adding two more years of universal education is “nuts.”

Community colleges are heavily subsidized, so tuition is low. In most states, Pell Grants cover the full cost of tuition for low-income students with money left over for books, rent and food.

The challenge isn’t access. It’s readiness—which is the precursor to successful completion of a degree or certificate from the community college. If you’re not prepared for college-level work when you arrive, the odds that you will succeed there are grim.

. . . (Universality) diverts resources and creates windfalls in ways that diminish the likelihood of ever solving the real problem.

Universality is “genius,” argues Richard Kahlenberg in The Atlantic. In Tennessee, almost 90 percent of graduating high school seniors have indicated interest in the state’s tuition-free community college plan, he writes.

The high interest suggests some middle-class and wealthy families whose children would have otherwise attended four-year colleges may be giving two-year institutions a second look. While some argue that free tuition for upper- and middle-class students is a waste of resources, in fact it is in everyone’s interest to ensure that community colleges are socioeconomically integrated.

Community colleges that serve middle- and upper-income students will gain the political capital to get more state funding, he argues.

Report: Fed aid drives up college costs

Federal student aid hasn’t helped lower-income students go to college, concludes a report by the Center for College Affordability and Productivity. Instead, federal aid has enabled colleges to raise tuition.

Pell aid goes up, but so does tuition

The near-doubling of Pell Grant funding hasn’t decreased borrowing by low-income students, who are supposed to be the beneficiaries. States have cut funding and colleges have raised tuition using federal aid to make up the difference.

Why college costs so much

What’s Behind America’s Soaring College Costs? Private college tuition tripled over the past 40 years in real dollars, writes  Ronan Keenan in The Atlantic. “In the last decade the increase was a staggering 25 percent.”

Federal student aid more than doubled from 2002 to 2012, he writes. That enabled colleges to raise tuition. Lenders bear no risk because student loans are guaranteed by the government.

Colleges have effectively been guaranteed an income stream and have used that certainty to partake in an arms race against each other by constructing lavish facilities and inflating administrative processes. The pursuit of education has turned into a vicious circle in which students need bigger loans to pay for higher costs, and colleges charge higher costs because students are getting bigger loans.

University presidents are paid lavishly, like CEOs of big companies.

Professors are teaching less. Only 43.6 percent of full-time faculty members spent nine hours or more teaching, according to a 2011 survey by the Higher Education Research Institute. That’s down from 63.4 percent in 1991. Hours spent preparing to teach also fell. 

The only way to control tuition costs is to reduce government support, writes Keenan. If student loans weren’t backed by the government, lenders would be reluctant to loan large amounts to humanities majors with low earnings prospects and to unprepared students who are unlikely to graduate.

Both colleges and employers must embrace three-year bachelors degrees; the traditional four years is an arbitrary number that just extends the time in education. Institutions can also reduce costs by adapting to the modern age and offer more online learning. But they will only do this is if the government limits the ability of students to pay the prevailing high tuition costs.

The current model enriches the universities while “graduates drown in debt,” Keenan concludes. 

His proposal would cut access to higher education — and it would force colleges to cut costs. Is it worth it?

Fixing federal aid: What’s feasible?

Federal student aid is driving up tuition, encouraging students to go slowly and costing taxpayers a bundle, says an economist. He proposes directing aid to low-income students and linking eligibility to academic progress.

California: Low fees, waivers starve colleges

Californians pay only $1,380 a year to attend community college — less than half the national average — and at least 40 percent pay nothing. The board may limit fee waivers by requiring a C average.

You don’t get what you don’t pay for. Raising fees and limiting waivers would enable colleges to add high-demand courses and cut wait lists.

Obama: Link student aid to college value

President Obama proposes rating colleges on tuition, student loan debt, graduation rates and graduates’ earnings so students can shop for the best value. Eventually, Congress will be asked to reward higher-performing colleges with larger Pell Grants and lower-cost loans for their students.

College costs will continue to rise, predicts an economist.

Obama vows college cost controls

President Obama vowed to “shake up” higher education and “tackle rising costs,” in a speech on the economy that stressed college affordability for middle-class families.

A bipartisan student loan bill that will lower interest rates — at least for now — has passed the Senate and is expected to become law. The compromise ties interest rates to the government’s cost of borrowing.

Parents are spending less of their income on their children’s college costs and relying more on grants, scholarships, financial aid — and frugality — Sallie Mae reports.