Often, as the Gordon Gecko character said in Wall Street, “Greed is good.” It supports the capitalist system. As people strive to make more money, they drive the economy forward, creating wealth for themselves and jobs for others. It’s a virtuous cycle.

However, the quest for greater riches can backfire when the government gets involved. For proof, look at our nation’s institutions of higher learning.

By most measures, colleges and universities have never been wealthier. Some 62 schools have endowments of more than $1 billion, and that money just keeps piling up. The average endowment increased more than 17 percent last year. But schools have no intention of spending their money to educate students.

The University of Michigan is an excellent example. It’s got the 10th largest endowment in the country, $5.7 billion as of last June. Yet it intends to spend just $61.9 million on undergraduate financial aid in 2008. As economist Lynne Munson wrote in USA Today, “that will mean this multicampus public university serving more than 40,000 students will be spending less than 1 percent of its endowment on undergraduate financial aid.” Meanwhile, Michigan jacked tuition up 7.4 percent.

How can they get away with making money coming and going? Well, because the federal government’s ready to pony up so much to help offset tuition increases.

The College Board says tuition at four-year private colleges jumped 6.3 percent last year. But that was made more affordable by the fact that three fourths of full-time undergraduates received some financial aid. “The two largest sources of aid to undergraduates are federal loans, which make up 40 percent of the total, and grants from colleges and universities, which comprise 21 percent of the total,” the group notes. So taxpayers are laying out twice as much as the universities.

And lawmakers want to throw even more at them. The higher ed¬ucation reconciliation bill pending in the House of Representatives aims to increase college student financial aid by $44 billion and reduce the interest rate on subsidized student loans from 6.8 percent to 3.4 percent by 2012. Yet making more cash available at lower rates would simply enable parents and students to borrow more money, allowing schools to raise tuition ever higher.

None of this makes sense, since the schools are sitting on such gigantic piles of cash. The Congressional Research Service says that if the 20 schools with the largest endowments would spend 0.7 percent of those endowments each year, they could eliminate the need for tuition increases. Since most students who graduate will eventually give money back to their university, that would seem a reasonable investment in the future. Yet federal interference in the market means schools don’t have to reinvest much of their endowments in their future. Continued...