Is College More Expensive Because of Financial Aid?

By Staff

Jeffrey Nadel, a college sophomore from Boca Raton, published a piece in The Daily Pennsylvanian suggesting that federal student aid actually has led to increased tuition rates among colleges.  According to Nadel,

When we control for inflation so as to evaluate only the real price of tuition and the real magnitude of federal aid, we find that aid per full-time student increased by 215 percent between 1981 and 2011. In the same time period, tuition at four-year public universities rose 268 percent, with that of private institutions following closely behind at 181 percent.

In his opinion piece, Nadel acknowledges that he is pretty much restating William Bennett’s theory. As former Secretary of Education, Bennett opined that federal student aid increases gave colleges tacit permission “blithely to raise tuitions, confident that Federal loan subsidies would help cushion the increase.”

As compelling as this argument may be, it seems to me much more of a chicken-egg dilemma. Are student aid subsidies increasing in response to tuition? Or is tuition going up because more aid is available to “cushion” the blow? Frankly, I think the economy and the rise of for-profit, Internet-based education have a lot more to do with tuition increases than federal aid.

Historically, in economic downturns, schools (especially graduate and professional programs, like business and law schools) see a spike in enrollment. This was true in the late-80s, mid-90s and after 2007. At the same time, unemployment leads to diminished income tax rolls. This means that subsidies for public colleges and universities go down, and tuition must be increased to maintain the same quality of education. At least those are the excuses offered.

Private colleges and universities are not as (or necessarily at all) dependent upon public funding to subsidize tuition costs, except in the form of the occasional research grant. This explains why tuition at private colleges has increased at a rate much slower than that of public institutions. Once you factor in the rise of the for-profit university, which relies solely on tuition dollars to keep its investors and owners smiling, average tuition rates are, yet again, skewed upward.

Moreover, the generalization seems to overlook the schools which have seen some of the greatest upsurges in enrollment over the past decade: community, technical and junior colleges. The average cost to attend such a school is actually considerably less than the amount of aid available to an average student. Thus, neither the frugal student attending the college, nor the college itself is behaving in the way Nadel suggests they should: “If students are given $5,000 more in financial aid, they will likely be willing to pay at least $5,000 more for their education.”

Lastly, one of the primary criteria for receiving federal student aid is a demonstrated financial need. This means that your Expected Family Contribution (EFC) must be below a certain threshold when compared to your projected cost of attending college in order to receive aid. Not everyone qualifies for government financial aid; a majority of students don’t qualify for government aid, outside of unsubsidized student loans. In light of this, colleges would actually be shooting themselves in the financial foot is they were actually raising tuition in response to the availability of aid.

The fact that government aid has been unable to keep up with the rising costs of college is another indicia that tuition rates and availability of government aid are not directly correlated. With the recent fiscal cliff drama, and the impending budget showdown, the government would actually have — and may still — cut financial aid funding by 8.2 percent. It would also cut research funding to colleges and universities. This, in turn, would likely lead to an increase in tuition. This is not the predicted result under either Nadel nor Bennett’s theories.

Rising tuition costs are a problem for students and society. But the answer is not a reduction in federal aid.. What really needs to happen is a thorough examination of college costs compared with the value of the education. Is my English degree (yes, I have an English degree) really worth 50, 60 or even $80,000? Then why do so many schools charge that much for one? An engineering degree; nursing degree; or computer science degree — yes, I can see the economic correlation. Knowledge is valuable for its own sake, but the economic costs of such knowledge should directly correlate to its economic value. It doesn’t seem fair that I should get jacked as much for sitting around reading Hemingway (and hoping that McDonald’s will hire me) as McGuyver Pocketprotector does for fending off job offers with his Bunsen burner. Does it?