Third-Party Payment Boosts Tuition Costs

The recent paper, by economists at Harvard and George Washington University, compared more than 2,650 programs within for-profit schools in three states over multiple years and found that the schools receiving federal grants and loans set their tuition roughly 75 percent higher than those institutions that go without government support.

College tuition wasn’t always a national crisis. As recently as the 1970s, the price of tuition actually declined 17 percent at public universities and 13 percent at private ones, according to data from the American Council on Education, a leading higher-ed lobby.

By the 1980s, things had changed. The price of tuition started to climb: By the end of the decade, it was up 47 percent at public universities and 54 percent at private schools, according to the council. What was different?… the Middle Income Student Assistance Act, which had the effect of offering federally subsidized student loans to anyone who qualified for college, regardless of income. During the Carter and Reagan administrations, the government further expanded federal aid, including Pell grants and Perkins loans for needy students. From 1978 to 1981, total available aid grew 70 percent, to a total of $14.7 billion, according to the Congressional Budget Office.

Full editorial on college costs in the Dallas Morning News.

Comments (7)

Trackback URL | Comments RSS Feed

  1. Anne Alice says:

    This is amazing. I’ve not seen this kind of tuition rate break down before and it is infuriating.

  2. Devon Herrick says:

    It’s really pretty simple. In economic terms, students have a market demand for a college education, with an associated price students are willing to pay for it. The amount they are willing to pay is a function of their job prospects for a given degree from a given college. Throwing in a government subsidy doesn’t change students’ market demand. But it allows colleges to raise tuition (i.e. price) without driving away students. If all government grants, loans and assistance were to evaporate overnight, the cost of tuition would fall.

  3. Joe Barnett says:

    Academics beware: Just as the government has imposed price controls on the fees docotors are paid by Medicare, it could impose tuition price controls on colleges and universities.

  4. Don Levit says:

    I wonder what the effect may be on health insurance premiums, if people are subsidized with grants instead of loans?
    Don Levit

  5. Bruce says:

    Interesting, but not surprising.

  6. Studebaker says:

    I have an idea. The federal government should scale back grants, loans and other subsidies for all but the most deserving students. It should also tax college tuition and place the funds into a personal education account (PEA) that reverts back to the taxpayer upon completion of his or her education. This forced savings plan would encourage (or at least tax) those that waste university resources without getting a degree. And, it would artificially raise the price of a college education (at least initially) such that colleges would have to lower tuition by a similar amount or lose students.

  7. Matt says:

    Not a bad idea. The government backing $60,000 loans so someone can graduate with a C average in art history from a mediocre is part of the reason there is such a massive crisis in post-secondary education. Of course those people can’t find jobs. I’m not saying there is anything wrong with an art history degree, but if someone has a year of bad grades why back their loans again? The country is doing so little to encourage the STEM education that we lack and need so desperately.