NCPA - National Center for Policy Analysis

Failing Grade for Student Financial Aid Programs

October 25, 2013

Now that the government is back open for business, it is time to refocus on the explosion of student loan debt. Standing at over $1 trillion, this issue should no longer be ignored, says Jared Meyer, a research associate at the Manhattan Institute for Policy Research.

  • For the almost 40 million people who have student loan debt, the average burden is just under $25,000.
  • There is a default rate of 9 percent within the first two years, and the overall delinquency rate is 15 percent.
  • The number of borrowers owing between $50,000 and $75,000 has doubled since 2004, and the number of people owing more than $200,000 has tripled.
  • During that time, overall student loan debt increased by 280 percent, while all other categories of non-housing debt decreased by 5 percent.

The government's $169 billion a year programs of Pell Grants, student loans and tax credits have failed to fulfill their original mission of helping low-income students attend college.

  • Government financial aid programs have raised the costs of higher education.
  • Tuition costs have increased over 1,100 percent since records began in 1978. In comparison, the cost of food has risen by 250 percent over the same period.
  • Automatically providing these funds through the government (how the system has worked since 2010) creates an overstated demand for college education.
  • This allows schools to raise tuition costs exponentially. The U.S. Treasury Department found that for every dollar provided in tax-based aid, scholarships fell a dollar -- shifting the burden from students and schools to taxpayers.

The rationale for using taxpayer funds to pay for higher education is that students will later put the knowledge and skills they acquire to use for the betterment of society. When this fails to be the case and students cannot get a job upon graduation, either because they are poorly advised and choose the wrong major or do not work hard, something has to be changed.

The current system is unfair to students and taxpayers and needs reform.  Members of both parties should be open to building upon common sense solutions. After all, America's future prosperity is at stake.

Source: Jared Meyer, "U.S. Student Financial Aid Programs Receive an 'F'," Economic Policies for the 21st Century, October 18, 2013.


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