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Guess Who’s to Blame for the Skyrocketing Cost of Higher Ed

Ever wonder why the cost of college always goes up, never goes down, and has been rising so much faster than inflation?  The short answer is because out of control government has poured more and more funding into financial aid and loan programs since 1978, when federal aid first exploded.  It’s another prime example of how good-intentioned liberalism has created another big, expensive mess for our society.  Sometimes it’s better to base public policy on economic principles than to allow emotional appeals to “compassion” and “students” to repeatedly carry the day.

Universities publish their “sticker price” but with all the financial aid available nobody really pays that, so the schools have very little incentive to control costs and keep prices down.  Plus, all the growing federal financial aid creates an increased demand that also puts upward pressure on prices.

In 1987, Education Secretary William Bennett hypothesized that ballooning federal financial aid was connected to schools aggressively raising their fees.   Now, after 30 years, the Federal Reserve bank of New York has published a study that shows that tuition at colleges increases about 60 cents for every increased dollar of Pell Grants or subsidized student loans.

How can we fix things?

If we want the power of the free market to work for us we first need to respect free market principles, like empowering students to make wise choices with their dollars.  Here’s part of economist Richard Vedder’s plan:

Give educational vouchers directly to students. That would empower the recipients to weigh costs more closely and reduce colleges’ incentive to increase spending. Grants and federal student loans should be given only to those with incomes below 150% of the poverty level. Aid should come with modest academic expectations, like maintaining a 2.0 grade-point average; and when a student’s prospect of success becomes remote, it should be cut off.

And how about making the schools bear some responsibility for loans taken out by students to attend their institution that go into default, instead of taxpayers always picking up the entire tab.  Isn’t that what banks usually do when they approve loans that ultimately fail?  Maybe if universities were accountable in this way they would offer and guide students toward degrees that are more marketable in today’s economy.

Peter Zeller is Director of Operations at Center of the American Experiment.

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