Viewpoint: Financial Aid Treadmill


It's a canon of political economy: if you subsidize something, you get more of it. In that case, we should have a heck of a lot of higher education by now. During the 1980s, federal and state governments have been very generous subsidizers of colleges and universities, as student aid spending has grown at almost twice the rate of inflation.

Over the same period, college costs have skyrocketed. Between 1981 and 1986, the average cost of going to college—including tuition, fees, and living expenses—climbed 57 percent. Well, guess what: that's also about twice the rate of inflation.

American families and taxpayers are running furiously on an education treadmill, expending a great amount of energy and money and getting nowhere. Financial aid spending hasn't made it any easier for the majority of American students to go to college. What aid has done is made it easier for schools to raise tuition. Financial aid is largely determined by how much money students need to attend school (rather than, for example, by scholastic achievement or military service). As a result, college administrators have found that by raising tuition, they can get more government money without losing many students.

As it turns out, we've been subsidizing not education but profligate spending by university administrators. And indeed, we now have more of it. According to the Higher Education General Information Survey, the portion of total funds spent on instruction at American colleges and universities declined by more than 4 percent between 1975 and 1985. The administrative portion, on the other hand, increased by almost 13 percent.

Another slice of the academic pie getting larger was "student services," a dubious category that includes institutional financial aid as well as such things as safe-sex kits and peer counseling. The share of expenditures for almost everything else a college does—research, libraries, instruction, operation, and maintenance—has gone down. "At some colleges, institutional student aid now exceeds total expenditures for the educational program," says Michael O'Keefe, president of the Consortium for the Advancement of Private Education. "It makes one wonder what business these colleges are in, higher education or income transfer."

Consider who benefits and who loses in the current vicious circle of financial aid. First, college administrators get more government money. They can then spend it on all sorts of goodies, including themselves. A survey by the College and University Personnel Association found that although faculty salaries rose 5.9 percent from 1986 to '87, administrative salaries rose 7.3 percent and alumni affairs directors' salaries climbed 10.3 percent. And higher tuition levels themselves are frequently prized by administrators as a way to boost their schools' prestige.

Administrators also go on construction binges. Northern Illinois University opened a new engineering school, at an estimated cost of $65 million to $85 million over the first 10 years even though there were 1,700 empty places in three other engineering programs within a 60-mile radius. And in a much-publicized incident, Harvard University managed to spend $100,000 building a guardhouse that a Boston hotel later duplicated for $5,000.

Government officials also benefit from the aid rat race by being able to claim they are "solving" the college cost crisis. During the past election, both parties promised more government programs to help families afford the cost of sending children to college—despite the fact that such programs would almost certainly lead to more tuition hikes.

Who loses? Taxpayers do, big time. Even the rationale given for why education should be publicly funded—that an educated populace benefits everyone—is rendered moot, since taxpayers are paying not for more education but for wasteful spending. And young people who don't go to college have to pay ever-increasing amounts to subsidize universities and fund the education of other young people who may one day compete with them in the job market.

Middle-income families also suffer. Those students who don't qualify for much financial aid have to pay the higher tuition, too. Given the importance our society places on a college degree, families are making sacrifices and keeping the kids at school, but the tradeoffs are painful—and tragically, unnecessary.

There are many ways that government could help students afford college, such as giving businesses tax incentives to fund prospective employees' education—sort of a GI Bill for private industry. But when government, having no incentive to be frugal with its money or selective about the recipients, becomes the major financier of higher education, prices rise and waste abounds. Administrators and bureaucrats gain at the expense of students, families, and taxpayers. And the subsidy treadmill continues to spin.

Editorial Intern John Hood is a student at the University of North Carolina, Chapel Hill.