Right On: Federal student aid facilitates excessive tuition increases

May 23, 2018 Utah Channel 3

OPINION — Parkinson’s Second Law tells us that expenses rise to meet income. For colleges, tuition rises to match increases in federal student aid.

This observation was first made by then-Secretary of Education Bill Bennett in 1987. Writing in the New York Times, Bennett described the effects of federal student aid following its dramatic expansion during the Carter administration:

“Increases in financial aid in recent years have enabled colleges and universities blithely to raise their tuitions, confident that federal loan subsidies would help cushion the increase. In 1978, subsidies became available to a greatly expanded number of students. In 1980, college tuitions began rising year after year at a rate that exceeded inflation. Federal student aid policies do not cause college price inflation, but there is little doubt that they help make it possible.”

This came to be known as the Bennett hypothesis and the subject of continuing debate.

As we might expect, liberals disagree with Bennett, claiming that colleges face legitimate funding requirements that can only be met with tuition increases. Conservatives see the federal funding horse pulling the tuition cart.

I’m with the conservatives – no surprise there – and here’s why.

From 1978 to 2017, consumer prices rose 275 percent while college tuition increased over 1,135 percent.

In lockstep with tuition increases, federal aid to college students increased from $5.6 billion to $70.7 billion, an increase of 1,160 percent. See a correlation here?

College tuition has risen much faster than either medical care (704 percent) or housing (511 percent), both of which get a lot more publicity and hand-wringing.

A New York Federal Reserve Bank staff report estimates that the average tuition increase associated with expansion of student loans is as much as 65 cents per dollar and that the impact is 55 cents per dollar with Pell Grants.

Jenna Robinson, president of the James G. Martin Center for Academic Renewal, reviewed 25 studies examining the Bennett hypothesis at a wide variety of postsecondary schools. She found that as much as 60 cents of each federal student aid dollar is eaten up by tuition increases.

Robinson wrote: “The theory is really just common sense. If the government gives money to students to spend on education, then students will be able and willing to spend more on that product. Universities, knowing that the funds are available, raise tuition without worrying about whether students can afford it. An ugly cycle ensues.”

So did this federal largesse with your tax dollars improve the quality of college education? According to the highly-respected Economist magazine, “American universities represent declining value for their money to their students.”

Instead of educational improvement, a disturbingly large portion of your money has been spent on college administrators, not faculty, and has started a race between universities to provide glitzy new student amenities.

In a previous column, I pointed out that the University of California, Berkeley, and the University of Michigan now have more senior administrators than professors. Between 1975 and 2008, the California State University system added 400 faculty and 8,400 administrators.

Colleges use your money to build glitzy new student centers and recreation facilities to attract students. These amenities add little to the quality of education. Our own Dixie State University is building a $50 million “Human Performance Center,” aka recreation center.

So what to do about over-the-top student aid?

A case can be made for just winding it down with some remaining provision for truly needy low-income students. Colleges might learn to better focus on their primary mission: classroom and lab instruction. The country would have a surfeit of unemployed former college administrators who had grown used to healthy salaries.

A more politically practical approach is suggested by Andrew Gillen. He points out that the amount of today’s federal aid available to students varies with the cost of attendance. That is, higher-cost colleges – think Ivy League – get more federal dollars per student than do lower cost colleges.

In effect, your federal tax dollars subsidize expensive schools. See the incentive for tuition increases here?

Gillen suggests instead that federal aid be tied to the median cost of college. Every student applying for federal aid, if approved, would receive an amount determined by the degree being sought (B.A, M.A, Ph.D.) and the field of study (computer science costs more than psychology).

This approach provides incentives for students to select colleges that give them the best value, whether that is a local state university or and Ivy League college. Elite universities have substantial endowments – Harvard has $35.7 billion – that can be used to supplement student aid.

While a conservative might like to see most federal aid phased out, Gillen’s approach could be implemented at any level of federal funding and at least would keep the rich from getting richer.

So should we help the truly needy attend college? Almost certainly yes.

Can the federal government do it without continually expanding the definition of who’s truly needy? Like every other federal welfare program, the answer is no.

Will colleges use federal student aid to further their own agendas? Yes, they’ve been doing it for 40 years.

All government subsidies, from student aid to farm price supports to corporate welfare, no matter how well-intentioned their goals, distort incentives and come with major unintended consequences.

Rein them all in.

Howard Sierer is an opinion columnist for St. George News. The opinions stated in this article are his own and may not be representative of St. George News.

Email: hsierer@stgeorgeutah.com

Twitter: @STGnews