Financial aid is costing you money

by Max Nelsen

I believe federal financial aid for higher education should be abolished. Before everyone starts reaching for the nearest pitchfork, I would like to acknowledge that I would not be in school, at least not at Whitworth, were it not for federal grants and loans. Despite this, I still believe that federal financial aid does more harm than good.

It is common knowledge among college students that higher education is getting prohibitively expensive, with tuition rates increasing each year. Information from the U.S. Department of Education shows that "Between 1998-1999 and 2008-2009, prices for undergraduate tuition, room, and board at public institutions rose 32 percent, and prices at private institutions rose 24 percent, after adjustment for inflation." According to College Board, average federal aid per full-time equivalent student increased 49 percent over that same period. Total federal student aid for undergraduates was almost $117 billion in the '08-'09 academic year and has increased 91 percent over the last decade.

This massive amount of federal student aid being doled out helps contribute to the ever-increasing costs of education. Financial aid essentially acts as a subsidy for higher education; the government is effectively paying part of the bill for students to go school. Colleges recognize that a significant portion of their students' college tuition comes in the form of federal aid. Brian Riedl of the Heritage Foundation notes that, "Applying basic economic theory, providing students with more purchasing power would allow universities to raise tuition and capture that additional aid, leaving the students no better off." Thus, federal aid allows colleges to increase their tuition without fear of becoming too expensive for students to afford. Essentially, as federal aid increases with the goal of making higher education more affordable, it has the opposite effect of increasing overall costs.

The political goal of increased access to higher education combines with the universities' goal of increased revenue to create a sort of vicious spiral of costs. As the government increases aid, colleges charge more, which, in turn, spawns yet more federal aid. In essence, federal aid creates a self-perpetuating death spiral of education costs.

Aside from skyrocketing costs, this spiral has additional side effects. Students are saddled with more debt as they are forced to take on increasing amounts of federal loans in order to afford their education. Furthermore, Gary Wolfram, George Munson Professor of Political Economy at Hillsdale College, writes that the increasing reliance on federal funds creates a situation in which the "resulting loss of independence of our colleges and universities affects the ability of voters to form opinions about public policy that are independent of the government's position." Lastly, taxpayers are left to foot the bill for the increasing financial aid used to send their children to school.

Despite this, the Obama administration is committed to increasing student aid. The White House website states that "the President is committed to increasing higher education access and success by restructuring and dramatically expanding college financial aid." Furthermore, President Obama has been making a series of backyard-style speeches during the last week in which he has promoted this agenda and criticized Republicans for supposedly seeking to reduce aid.   

If policy makers are serious about reducing the cost of education, increasing financial aid is not the way to do it. Instead, a gradual phasing out of financial aid is a more appropriate response. Wolfram states that, were aid to decrease, one of the first things that would happen would be a decline in tuition rates. As soon as colleges realize they can no longer count on perpetual increases in aid funds to justify increasing tuition, they will be forced to actually begin charging tuition more commensurate to what people can afford. It would be impossible to maintain enrollment if they did not. This would also have the effect of increasing competition and efficiency among schools and, consequently, educational quality, as colleges are forced to earn their tuition dollars from students instead of the government.

While this may seem counter-intuitive, it is an important step in reining in the cost of education. However, current students should not worry about any major changes to the financial aid system anytime soon. Like so many other inefficient government programs, federal financial aid would be so politically unpopular to curb that there is practically no danger of it being proposed, let alone enacted.