NCPA - National Center for Policy Analysis

Reducing Federal Aid Key to College Affordability

March 23, 2012

As the federal government seeks to address the skyrocketing tuition rates of postsecondary institutions, one consideration has been to expand bankruptcy eligibility so that students can escape crushing loan debt.  However, as Neal McCluskey, associate director of the Center for Educational Freedom at the Cato Institute, explains, a better solution would be for the federal government to lower aid levels.

  • According the College Board, between the 1981 and 2011 school years, inflation-adjusted aid per full-time equivalent student rose from $4,418 to $13,914 -- a 215 percent increase.
  • Over the same timespan at four-year public institutions prices expanded from $2,242 to $8,244 -- a 268 percent increase.
  • At four-year, nonprofit private institutions prices rose from $10,144 to $28,500 -- a 181 percent increase.

While it is difficult to state definitively that higher aid caused higher tuition, the logic behind the relationship is strong: because students have greater access to funds, schools inflate rates.

The overall conclusion that can be drawn from this inflation is that because of government subsidies, too many students are going to college.  This not only saddles them with substantial debts and widely varying earnings potential, but also grants only mediocre educational outcomes.

  • According to data from the federal Digest of Education Statistics, only 55 percent of first-time, full-time bachelor's degree seekers at public institutions finish their degree within six years.
  • Estimates of the lifetime financial gain from a college degree range from $1 million to just about $100,000, with many not even earning that much.
  • According to Bureau of Labor Statistics' data, the weekly earnings for people whose maximum educational attainment is a Bachelor's have dropped over the last decade by about 4 percent.
  • Researcher found that 45 percent of students in their sample demonstrated no significant learning in their first two years of college, and that 36 percent demonstrated no learning in four years.

All of these trends suggest that college education is actually becoming less valuable while becoming more expensive.  Indeed, currently about one-third of people with Bachelor's degrees are in jobs that do not require them.

Source: Neal McCluskey, "Reducing Federal Aid, Not Changing Bankruptcy Laws, Key to College Affordability," Cato Institute, March 20, 2012.

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