[Paleopsych] CHE: (CATO) Report Blames Federal Student Aid for Rising Tuition and Urges Elimination of Aid Programs
checker at panix.com
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.]
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
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 Web site.
Background articles from The Chronicle:
* Public Colleges See a 10% Rise in Tuition for 2004-5
* Hillsdale College Stands Out for Refusing Federal Money
45. mailto:silla.brush at chronicle.com
E-mail me if you have problems getting the referenced articles.
Making College More Expensive: The Unintended Consequences of Federal
by Gary Wolfram
Gary Wolfram is George Munson Professor of Political Economy at
Hillsdale College in Michigan.
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
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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