[Paleopsych] CHE: (CATO) Report Blames Federal Student Aid for Rising Tuition and Urges Elimination of Aid Programs

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Wed Jan 26 15:53:53 UTC 2005

Report Blames Federal Student Aid for Rising Tuition and Urges Elimination
of Aid Programs
News bulletin from the Chronicle of Higher Education, 5.1.26

[CATO's own write-up beneath.]

    [45]By SILLA BRUSH

    Congress should gradually phase out federal student aid when it drafts
    legislation to renew the Higher Education Act this year because the
    act has driven up the cost of tuition since it was passed, in 1965,
    according to a report released on Tuesday by the Cato Institute.

    The report concludes that increased financial aid through Pell Grants
    and other federal assistance programs has led more students to attend
    college. That increase in demand has had the "unintended consequence"
    of increasing the price of higher education.

    The report does not specify to what degree tuition has increased
    because of the Higher Education Act, the federal law that governs most
    federal student-aid programs and is up for reauthorization this year.

    The author of the report is Gary Wolfram, a professor of political
    economy at Hillsdale College, an institution in Michigan that does not
    accept any federal money and does not allow its students to do so
    either. The Cato Institute is a research institution in Washington
    founded on what it describes as libertarian principles.

    The report echoes comments made during the 1980s by William J.
    Bennett, then the education secretary, about cutting federal
    student-aid programs.

    The report recommends phasing out federal assistance to higher
    education over a 12-year period. That would cut the price of tuition,
    the report says, and encourage the private sector to be more involved
    in tuition assistance.

    The full text of the report, "Making College More Expensive: The
    Unintended Consequences of Federal Tuition Aid," is available on the
    institute's [56]Web site.

    Background articles from The Chronicle:
      * [57]Public Colleges See a 10% Rise in Tuition for 2004-5
      * [58]Hillsdale College Stands Out for Refusing Federal Money


   45. mailto:silla.brush at chronicle.com
   50. http://chronicle.com/daily/2005/01/2005012601n.htm
   51. http://chronicle.com/daily/2005/01/2005012602n.htm
   52. http://chronicle.com/daily/2005/01/2005012603n.htm
   53. http://chronicle.com/daily/2005/01/2005012604n.htm
   54. http://chronicle.com/daily/2005/01/2005012605n.htm
   55. http://chronicle.com/daily/2005/01/2005012606n.htm
   56. http://www.cato.org/pub_display.php?pub_id=3344
   57. http://chronicle.com/weekly/v51/i10/10a00101.htm

E-mail me if you have problems getting the referenced articles.


Making College More Expensive: The Unintended Consequences of Federal 
Tuition Aid

                               by Gary Wolfram

       Gary Wolfram is George Munson Professor of Political Economy at
                        Hillsdale College in Michigan.

                              Executive Summary

    As Congress debates the reauthorization of the Higher Education Act,
    it should heed Friedrich Hayeks warning that democracy is peculiarly
    liable, if not guided by accepted common principles, to produce
    over-all results that nobody wanted. One result of the federal
    governments student financial aid programs is higher tuition costs at
    our nations colleges and universities. Basic economic theory suggests
    that the increased demand for higher education generated by HEA will
    have the effect of increasing tuitions. The empirical evidence is
    consistent with thatfederal loans, Pell grants, and other assistance
    programs result in higher tuition for students at our nations colleges
    and universities.

    The diversity of objectives, resources, and types of governance among
    the thousands of colleges and universities makes it difficult to
    adequately measure the exact amount by which tuitions rise in response
    to federal student assistance. Therefore, estimates of the amount vary
    in the literature. Congress can at best know that its policies
    increase tuitions and that some portion of the federal assistance ends
    up being captured by state governments and by the colleges and

    Also, when large numbers of students begin to rely on the federal
    government to fund their higher education, and the federal government
    uses this financing to affect the behavior of state and private
    institutions, we should be concerned about how 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 governments position.

    Rather than expand the current system, Congress should consider a
    phase-out of federal assistance to higher education over a 12-year
    time frame. As the federal government removes itself from student
    assistance, we should expect several things to happen. First, sticker
    tuition prices should decline. Second, the private market should
    respond to the phase-out of federal assistance. That response would
    likely take three forms: additional private-sector loans, additional
    private scholarship funds, and perhaps most importantly, the expansion
    of human capital contracts. Human capital contracts, first suggested
    40 years ago by Nobel Laureate Milton Friedman, would allow students
    to pledge a portion of future earnings in return for assistance in
    paying their tuition.

Full Text of Policy Analysis no. 531 (PDF, 333 KB)

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