The college bubble continues to swell, as tuitions rise at an unsustainable rate. College tuition has risen faster than inflation for over a decade; the cost of college has increased 16.5% in constant dollars since 2006. Meanwhile, the federal government keeps handing out more and more financial aid. Pell grant awards have increased 118 percent over the last decade.
Well-meaning as the aid may be, the two facts are inextricably linked. Government aid drives up college tuition. While aid undoubtedly has helped many families, it has hurt both the average family, and, paradoxically, many of those at the very bottom of the income scale.
The fact that federal student aid drives up college tuition is well-documented by both liberals and conservatives. Writing for the Cato Institute, Gary Wolfram points out, “Private four-year colleges increased listed tuition prices by more than two dollars for each dollar increase in Pell grants.”
Public universities also increased their tuition by $0.97 for each dollar increase in Pell grants. At the same time, the Christian Science Monitor published a report arguing that for every $1,000 of student aid, net tuition (college sticker price - financial aid) decreased by only $100 to $150. So when financial aid rises $1,000, tuition increases $850 to $900.
But while the link between federal aid and tuition hikes is clear, who it helps and hurts is not as cut-and-dried. Some families are helped by financial aid, while many others are hurt by the unintended consequence of higher tuition.
Students from low-income families are the prime beneficiaries of federal financial aid. If federal aid causes tuition at the University of Colorado to rise (say) by $3,000 per semester, but applicant John receive $5,000 in grants and some more money in cheap federal loans, than federal aid helps him to the tune of at least $2,000. For some students, that can mean the difference between being able to go to college or not; or between being able to attend a four-year university or a two-year community college. The benefits should not be understated.
Julian Adorney is a Young Voices Advocate and is majoring in English and Advertising at the University of Colorado at Boulder. Julian’s written for the Foundation for Economic Education, the Ludwig von Mises Institute, Junior Scholastic magazine, and Speak Liberty Now.