NCPA - National Center for Policy Analysis

DOES FEDERAL AID FOR COLLEGE STUDENTS DO MORE HARM THAN GOOD?

July 13, 2004

Government loans and grants for college students may be responsible for making college less affordable, says the Heritage Foundation.

The Higher Education Act of 1965, which is due for reauthorization by Congress, provided $103.6 billion in student loans and grants in 2003. Proponents would like to see more funding for the HEA, but according to researchers, federal aid may provide perverse incentives:

  • Tuition and fees have increased by 38 percent for private four-year colleges over the past 10 years and by 202 percent over the past 22 years, possibly due to the fact that colleges siphon as much money as possible from federal aid.
  • Federal loan limits are exceedingly high -- $23,000 for dependent undergraduates, $46,000 for independent undergraduates, and $138,500 for professional students -- which may encourage students to accumulate more debt than they would otherwise.
  • Universities become desensitized to price increases, and money is wasted on bloated administrations, recruitment, remediation and classes which offer little academic value.

Krista Kafer, Education Policy Analyst at the Heritage Foundation, recommends reforms to the HEA program, including:

  • Ending subsidies to middle-class and wealthy students and focusing on needy students; currently, about 25 percent of students who receive federal aid come from families with incomes over $100,000 per year.
  • Reducing fraud in the Pell Grant program; the General Accounting Office reports that ineligible students and fraudulent applications cost the program $600 million during the fiscal year 2001 to 2002.
  • Treating both institutions and professions equally by eliminating loan forgiveness that favors certain professions and phasing out yearly funding that favors minority-serving institutions.

Source: Krista Kafer, "Refocusing Higher Education Aid on Those Who Need It,"Heritage Foundation, Backgrounder No. 1752, April 26, 2004; William Troutt, et al. "Straight Talk About College Costs and Prices," National Commission on the Cost of Higher Education, January 21, 1998; and Linda Calbom, "Education Financial Management: Weak Internal Controls Led to Instances of Fraud and Other Improper Payments," United States General Accounting Office, April 20, 2002.

For NCCHE report: http://www.nyu.edu/classes/jepsen/costreport.html

For GAO report http://www.gao.gov/new.items/d02513t.pdf

 

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