Student Loans

Study: Yes, Student Loans Are Making College More Expensive

Driving up tuition prices.



Long have liberals vowed to make higher education more affordable by offering ever more generous loan subsidies, and long have conservatives and libertarians argued that federal aid merely gives colleges license to drive up the price. A study by the New York Federal Reserve offers some new evidence that the latter group is correct. According to the study's authors:

We find that institutions more exposed to changes in the subsidized federal loan program increased their tuition disproportionately around these policy changes, with a sizable pass-through effect on tuition of about 65 percent. We also find that Pell Grant aid and the unsubsidized federal loan program have pass-through effects on tuition, although these are economically and statistically not as strong.

The argument goes like this: Since government aid programs make it easier for students to pay the sticker price of admission, no matter how high that price rises, universities have every incentive to respond by charging more. The universities have little to worry about—they get paid up front, regardless of how difficult it is for the students to repay the government (or the government's actual creditors: the U.S. taxpayer).

The new study does indeed find evidence of this connection between loans and price gouging. The Wall Street Journal's write-up portrays the issue as analogous to the housing bubble:

Imagine a scenario in which the federal government helps households pursue the American dream with ultra-loose credit, only to see prices skyrocket and families take on loads of debt they can't repay.

Yes, it sounds like the housing market of a decade ago, but some say it is also the challenge of today's higher-education system.

WSJ also takes note of some of the study's limitations, which nevertheless suggest that federal aid's distorting effect on tuition prices might be even more powerful:

One thing the latest research doesn't address is the effect of student aid on graduate-school tuitions, which have disproportionately driven the surge in student borrowing. And grad school is perhaps where the market is most distorted by federal policies.

The federal government limits how much undergrads can borrow—up to $57,500 total—but doesn't for grad students, who can borrow to cover any amount their schools charges through a decade-old program known as Grad PLUS. Economists say that has given institutions unprecedented pricing power. Debt-forgiveness programs also could be desensitizing grad students to high prices.

Andrew Gillen, a researcher for the Charles Koch Foundation who has studied the economics of higher education for years, told WSJ that graduate school tuition hikes didn't outpace undergraduate tuition hikes until after the implementation of Grad PLUS—implying that easier access to federal dollars is indeed a likely culprit.

The implications of these findings are massive. Liberal policymakers—President Obama and Sen. Elizabeth Warren among them—shouldn't be let off the hook when they offer young people (and some middle-aged and even old people) the same tired promises about making higher education more affordable. College becomes less affordable with each passing day, and federal intervention is at least partly to blame.

NEXT: Obama Attempts to Sell His Energy Program, Lawmakers Target Planned Parenthood, Trump Used to Oppose Drug War: P.M. Links

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  1. I think one of the foundational personality traits of people who tend to be progressives is a complete inability to understand incentives. I mean, it’s not like conservatives don’t get it extremely wrong a lot of the time too, but it seems like progs are people who not only don’t get incentives, they actually want to deny them when they clearly exist, or at the very least, pretend they don’t exist. It’s why the Wall Street “greed is good” speech is like a lightning rod for them. They HATE that people feel greed. They want it to not exist…so they will pretend it doesn’t. No matter what the consequences.

    1. you’re giving progs too much credit. At some point, you have to seriously ask if negative outcomes are not, in fact, the things they want to achieve. For instance, if you have people in hock for tens of thousands in debt, you offer up a list of jobs through which a short hitch reduces or eliminates the debt.

      Jobs that fall under a broad “public service” banner are a way of doing that. The time needed to pay off your debt also gets you hooked into a system so that when your requirement is done, you have to consider what you are leaving behind in terms of pensions and benefits. It’s a nasty system.

      1. I have a difficult time attributing to malice that which can be adequately explained by stupidity. Because let’s face it; most people aren’t bright enough to orchestrate elaborate entrapment schemes like that. I’m not saying no one is, but honestly, that’s a serious long con, and even the best grifters have trouble making those work.

        The way I see it is that human tendencies tend to settle in overlapping self-reinforcing behaviors. So when you combine the prog desire for free shit with young people thinking they *have* to go to college and also being completely naive about money and debt finally combined with the obvious incentives of the schools to charge them metric assloads of money (because they can), you get what we have. It’s happened because all those incentives actually work together in a demented way.

        It’s not good, but sometimes human incentives combine successfully in very bad ways.

        1. I don’t think it’s either malice or stupidity. I think they understand that the subsidies will drive up prices – they just don’t care. They believe the negative consequence is minimal to the positive (free shit). “The price we pay for free education is increasing prices which is fine with me.”

          1. That’s a valid theory. I still think that even if that is the case, the reason they just do not care is because they fundamentally don’t understand why that’s not a good result. They cannot grasp how driving up prices will effect everyone–including them.

            Basically, the very belief in “free shit”, as if everything didn’t have to be paid for in some way or another, is the definition of stupidity in this case. I posit that if you actually believe there is such a thing as a free lunch, you are, by definition, stupid.

            1. Really, who cares how expensive education is, when it’s free?

              Same goes for medicine.

              1. The problem with “free shit” is that you eventually run out of other people’s money.

                Look at Brazil.

                1. Or Greece, or Venezuela…

          2. By the way, when you were Lady Bertram, you made some incredbily great observations about the Greek crisis which helped me a lot. Oddly enough when the discussion was going on, I was taking an economic class that actually centered on the Greek crisis.

            1. By the way, when you were Lady Bertram…..

              Goddamn it. Has everyone figured out my prior names? I try to pass myself off with some credibility and anonymity and everyone figures it out in, like, 5 minutes.

              I read a lot about the Greek situation. Glad it helped.

              1. There’s perhaps half a dozen admitted female posters, and of them only two or three who go by feminine noms de plume. When Lady Bertram went absent and Mrs. Lemuel Struthers turned up, it wasn’t too much a stretch to assume you murdered the Lady Bertram and attempted to pass yourself off! J’accuse!

                1. Foiled again!

                  1. And, your names do tend to follow a pattern – I’m a fan, so an honest observation from a fellow libertarian female.

                2. She owes me alimony and she’s behind at least 6 payments. That’s why she keeps changing names.

          3. They believe the negative consequence is minimal to the positive

            If they “believe”, then it actually can be blamed on ignorance. Logic proves itself, no need to believe.

          4. No, negative consequences are due to greedy corporate capitalists or evil Republicans.

        2. They’re just stupid.

          They’ll refer to a study where some particular detail of federal student loan lending was altered, no measurable, immediate change in student loan debt or tuition prices was observed, and they’ll conclude that tuition prices are completely independent from federal student loan policies.

          Because they’re so reality based.

        3. this this this this this. and if it was malice it would have had to be extremely well planned and executed malice, which our government is, if not incapable of, certainly incapable of keeping quiet

      2. Robert Higgs has an excellent article on this topic, All Government Policies Succeed in the Long Run:…..-long-run/

        It’s just that the ruling elite’s definition of success for a given government policy is quite quite different from both your idea of success and the ostensible purpose of that policy.

    2. Epi, it’s people such as you describe who make the worst sort of statists. They feel that everyone should “contribute” their “fair share” of money or time or action to whatever cause they deem important – and then feel indignant when others have the gall to disagree with them.

      Unfortunately, too many of their kind worm their way into positions of power. Which is one reason why education, housing, medicine and name it is so screwed up in this country. And it would take a woodchipper the size of Oregon to deal with the problem.

      1. The whole collectivist impulse is pernicious and nasty, but I don’t know if it’s related directly to just being stupid about free shit. The collectivist/statist impulse seems to stem more from the losers, the people who feel like they will sink if the rest of us don’t help keep them afloat. Free shit is just the morons thinking that you can actually get shit for free as if there weren’t some type of strings attached to everything. Even stealing comes with strings, because people don’t like being stolen from.

    3. On the subject of college tuition at least, conservatives do seem to have a better handle of incentives. What they lack is imagination. They think the system is basically fine but needs to be fixed or tweaked. They remember their education fondly and think we need to return to the studious, button-down days of yore. In reality, there should be no public funding of education whatsoever. Whatever replaced it would be infinitely better. Apprenticeships would probably come back, for one. Teenagers would have jobs and be trying to figure out their careers. Mattress girls would have to carry their own mattresses.

      1. There shouldn’t be public funding of anything whatsoever. Any time you separate the payer from the transaction, the incentives all go to hell. Humans tend to do extremely well when directly having to face the consequences for their choices.

    4. I think one of the foundational personality traits of people who tend to be progressives is a complete inability to understand incentives.

      It’s more general than that, and it comes from the process most people (especially progressives) use to solve problems.

      First, they emotionally appraise the situation, usually resulting in a “solution” and an “anti-solution.” This is the FEELZ step, and it already strips all nuance out of the situation.

      Second, they anchor to their “solution” such that they only consider the most superficial consequences or effects, ignoring any deeper analysis. This is where they ignore incentives and other second-order effects. To them student loans == education opportunity. Nothing more, nothing less.

      Finally, they associate moral weight to their “solution” and immorality to the “anti-solution,” keeping the problem-solving process in the FEELZ stage and not in the rational thought stage.

      When they can’t get past the emotional first-blush reaction to a situation, they’re stuck evaluating problems based on (largely skewed) first-order effects. Their understanding ends at “paying for kids to go to college feels good.”

      1. That’s a good way to describe it. They basically only have the capacity to ascribe one possible result or outcome to their choices, so if it makes them feel good, that’s the one that wins, and they don’t have the ability to consider second order effects and the like.

        1. I took a class on decision theory over the summer, and it was fascinating to see how little time most people spend in rational thought (system 2 – the thinking brain). Most of the time your brain is engaging in emotional response (system 1 – the feeling brain), even if you think you’re being rational.

          We did a small logic test in the class, and it was amazing to see the results. Some people could not understand how to get to the correct answer, even if they were given time to engage their rational side of their brains.

          1) A a bat costs $1 more than a ball. The ball and bat together cost $1.10. How much does the ball cost?

          2) It takes 5 machines 5 minutes to make 5 widgets. How many minutes does it take for 100 machines to make 100 widgets?

          3) In a lake, there is a patch of lily pads. Every day, the patch doubles in size. If it takes 48 days for the patch to cover the entire lake, how long would it take for the patch to cover half of the lake?

          1) $.05 2) 5 minutes 3) 47 days

          A (relatively shitty) article on most people’s sole residence in FEELZville

          1. Hahahahaha, that’s great.

          2. All of those problems require an understanding of math which is something that most lib arts programs do not assist.

          3. The only one that took me more than a second was the third one. Then I felt stupid when I figured it out. Course, I’m an engineer. Applying logic to problems is 95% of our education.

    5. I think there’s also a general inability to separate reality from some morally perfect existence. How many times have you heard arguments like these:

      “Armed security in schools is bad because we shouldn’t have to keep our kids safe with guns”

      “Don’t tell women at college parties to ‘be careful’ because rape is wrong and women shouldn’t have to worry about being raped”

      “College/healthcare/tampons should be free”

  2. What’s this? You mean economically illiterate progtard morons pandering to the “free shit” crowd are wrong about something? Quick, help me to my feinting couch! /sarc

  3. NO. It isn’t true. You are just hatemongering and fearloathing and bad bad bad. *screams into pillow*

  4. Free college for all! It will be easy folks. All of those professors preaching anti-capitalism and equality will work for free!

  5. One wonders how much the cost of education could be reduced if universities shut down their Ethnic Studies, Gender Studies, LGBTWTFBBQ Studies and all the other assorted Underwater Dog Polishing programs.

    Fire the professors, eliminate the entire degree programs, eliminate all the non value-added horseshit that passes for “education.”

    How much would that cut from a university’s operating budget?

    1. That’s irrelevant. If people want to spend money on useless degrees, go for it. The problem is that they aren’t spending their money, they’re being subsidized by the rest of us. They’re like a person on Medicaid going to the emergency room for a headache.

      They are disconnected from the price signals in their “purchase” of this education. And once you disconnect people from price signals, you get a lot of really idiotic purchases.

      1. “That’s irrelevant. If people want to spend money on useless degrees, go for it. The problem is that they aren’t spending their money, they’re being subsidized by the rest of us”

        That’s the point. I guess I may have the cause and effect reversed; these bullshit departments exist in large part because they’re subsidized by taxpayers and thus, as you point out, disconnected from price signals. Eliminate the subsidies and the bullshit programs would go away.

    2. Don’t forget to shut down all the non-academic “student life” departments, while you are at it.

      The other thing that I have noticed is that colleges are spending vast sums of money on non-academic facilities – poshy dorms and apartments, vast, state-of-the-art gyms, that kind of thing. Unfortunately, those bonds have to be serviced, so they will be propping up tuition rates for decades to come.

      1. The other thing that I have noticed is that colleges are spending vast sums of money on non-academic facilities – poshy dorms and apartments, vast, state-of-the-art gyms, that kind of thing.

        The only thing that amazes me more than how much college is being cargo culted is how many people want to vociferously deny that it is happening.

      2. It disturbs to no end how many departments are dedicated to diversity and multiculturalism. It also grates me when I hear students gush about the diversity on the campus and how the college makes them feel welcome. We’re in the 21st Century where the prospect for jobs are little more competitive and if your concern is how a college makes you feel welcome and how many college administratiors grovel at your feet to rid themselves of their preceived white guilt, then you’re priorities are pretty fucked up.

        1. When humans are highly successful and not under survival pressure all the time, they tend to do exceedingly stupid shit that seems insane when put in the context of “the real world” (i.e., survival pressure). As the human race continues to be more prosperous and successful, we’re seeing increasingly dumber and counterproductive fads come into vogue…because they can.

          This is not going to get better, and that just needs to be understood. Because ideally, we will actually continue to get more and more prosperous and successful, which means that you are going to see infuriatingly dumber shit become popular…because it can.

          It’s annoying as hell, but it’s actually an indicator of prosperity.

          1. I learned that when I asked my grandfather how he was able to feed his 14 children during the days of Jim Crow. His response was,” I had to work my ass off or my children starved.”

    3. How much would it cut from the university’s tuition, as well?

      I’d be interested to see the net financials on those departments. There’s a lot of gullible suckers out there, and the Department of Education is handing out loans without regard (in fact, almost with inverse consideration for) the debtor’s ability to repay the loan.

  6. Surely just one data point, so I hesitate to invert it to the whole population, but a few years back I knew a fellow who just got out of State University. He had student loan debt payments. BUT, he also worked a summer job that provided more than enough for tuition, books, housing, etc etc. The first few years he lived the life of an on-campus student, attending to his studies (biology) and was getting such good grades some professors urged him toward some sort of medical degree (he was certainly smart enough). But then he took student loans at some point in, and with the earned money, had money to burn. He became a very popular fellow being able to buy and share whatever made the party flow. His grades began to suffer (A’s to C’s) and any notion of a medical vector was gone (not that he had the motivation apparently anyway). So he finished up his biology degree and with the only prospects to work in for-profit research, which boring and paid bupkiss, he went to work for his uncle doing a largely unnecessary office job. In short, the free money debased him and compounded a lack of motivation. Of course, with ACA, and single payer not too far in the distance, he probably ended up making the best choice…

    1. “Math is hard.”- Malibu Stacy

      1. “Joe, I told you, it’s over. Now release me from your Kung-Fu Grip.”

        1. “I’ll bomb your house into the ground, missy.”

  7. Please don’t call the likes of Obama and Warren “liberals” — use leftists, progressives, or statists (if we’re being charitable).

    1. liberal has been long since corrupted. Let go and embrace a new name.

  8. I cannot believe this. The study’s conclusions are literally unbelievable. This cannot be correct. Un. Possible.

  9. 30 years ago, when I was in junior college, the faculty were crabbing about the fact that our CC was the most expensive per credit hour of all the CC’s in the metro.

    Of course, this was due to the fact that our CC had the highest number of students on Pell Grants and other aid programs. That area also has the highest property taxes in the metro area, and there isn’t much in the way of expensive housing in that part of town.

    Detroit is the model.

  10. While we’re cutting down loans and higher ed bureaucracies, can we cut down on unnecessary studies by the Federal Reserve?

    Just like Cato’s policy analysis published some 10 years ago, I doubt a single person will read the study and change their mind.

    1. Yep, the world will die because what is known is ignored, not because we don’t know what could save us.

  11. I see a very bright and lucrative future for people who choose HVAC, plumbing, electrics, carpentry, welding, etc.

  12. OT: Speaking of economic illiteracy: “Look, if any job is going to take up someone’s life, it deserves a living wage. If a job exists and you have to hire someone to do it, they deserve a living wage. End of story. There’s a lot of talk going around my workplace along the lines of, “These guys with no education and no skills think they deserve as much as us? Fuck those guys.” And elsewhere on FB: “I’m a licensed electrician, I make $13/hr, fuck these burger flippers.”

    And that’s exactly what the bosses want! They want us fighting over who has the bigger pile of crumbs so we don’t realize they made off with almost the whole damn cake. Why are you angry about fast food workers making two bucks more an hour when your CEO makes four hundred TIMES what you do? It’s in the bosses’ interests to keep your anger directed downward, at the poor people who are just trying to get by, like you, rather than at the rich assholes who consume almost everything we produce and give next to nothing for it”

    1. Here’s the link to this craziness:…..5-hr-wage/

    2. Arent most fast food franchises?

      1. They are but many people on the left don’t know the difference between franchises and company owned fast food places.

    3. Isn’t it something like only 6% of the workforce that makes actual minimum wage? Why the fuck are we talking about messing up the entire economy for 6% of working people?

      Oh, and that paramedic with all his training and knowledge and skills is a fucking moron.

      And apparently Joe Fletcher does not realize that this: “This is because of the ripple effect that raising the minimum wage has on wages of people who earn 150 percent or less than the minimum wage.” just means IF the ripple travel far enough up, those assholes who got bumped up to $15 will be right back where they started – at the bottom of the fucking barrel.

      1. I know someone who is part the SEIU and was peddling this article. When I pointed out that his agreeing with his article isn’t due to him caring about the downtrodden but because his wages are tied to minimum wage, he completely lost it.

        1. Now that’s funny.

  13. When I was at VCU I used to mock sign-holders wanting “affordable tuition” as their solution was to just have the state impose price controls or have the state give students more money.

    To my surprise, when I pointed out that the reason the cost is so high is because of the state’s involvement, they actually agreed but said in the short-term they cost wouldn’t drop enough for their likes, so it doesn’t matter. They weren’t wrong.

    I don’t know if they saw the humor in their predicament or not though.

  14. I fully agree with the economics argued here.

    If libertarians are going to gain traction with their ideas, I’d like to hear market based ideas on how to fix rising higher ed prices.

    However, keep in mind that simply saying “fuck the poor and/or average” is a political loser of Marie Antoinette proportions. Where I live (Denver) undergraduate degrees are so prevalent that your resume is worth less than toilet paper without one.

    Real world solutions???

    1. I think at least part of the market correction here would be not everyone having to have a degree. Degrees should be functionally useful, not a status symbol. If they are fungible, it should be because of the skills their earning bestows, not merely their exiatence.

      1. I would say that most people getting degrees today would agree with you. The majority of “degree required” jobs today absolutely don’t require a degree to perform the job. However, employers require a degree. Engineers, doctors, lawyers, teachers and other professionals would be the exception. But most business degrees, and liberal arts degrees provide little in the way of real world training.

        Where do we start then? And to whom is it the responsibility to start? Do employers lower their standards? Do high school graduates work against their economic self interest, and forgo college? Do colleges raise their standards?

        1. Where do we start then?

          The law has to change. All of this is a response to legal incentives.

          Stop graduating people from high school who aren’t proficient in reading, writing, and arithmetic. Stop requiring employers to hire “diverse” workforces. Start forbidding lawsuits against employers for “discrimination” and, absent a contract, “wrongful termination”.

        2. Eric|8.3.15 @ 9:08PM|#
          “…However, employers require a degree…”

          Cite missing.

          1. There is no direct requirement, rather it is the result of multiple court decision (including the SC) over disparate impacts of qualification testing. The courts have left a sanctuary for determining that a college degree could be a job requirement. Now we have “police science”, hotel management degrees etc. so employers have some method to hopefully determine someone has enough discipline to follow a schedule.

    2. Where I live (Denver) undergraduate degrees are so prevalent that your resume is worth less than toilet paper without one.

      Real world solutions???

      Don’t create a resume, or lie and say you have a degree when you don’t.

      1. You do realize many employers conduct background checks on prospective and new employees? It’s fairly simple to do.

    3. Not everyone should go to college.

      1. Fair enough. How should market forces prevent them from doing so?

        1. Make it easier (read: cheaper and less lawsuit-prone) to hire, fire, and retain people. Make it harder (read: stop prioritizing “graduation rates” as though they mean something) to graduate from high school. “Market forces” will adjust accordingly.

          If you aren’t willing to address the two primary reasons why degrees have become a de facto required credential to obtain a job, then “market forces” can’t do squat. People can’t respond to incentives that don’t exist.

          1. Repeal the minimum wage.

    4. “However, keep in mind that simply saying “fuck the poor and/or average” is a political loser of Marie Antoinette proportions. Where I live (Denver) undergraduate degrees are so prevalent that your resume is worth less than toilet paper without one.”

      You’ve poisoned the well, and now ask for solutions?
      I’m reminded of the old joke:
      The Socialists are down, 10-1 in the bottom of the ninth, two outs. They pinch-hit a free market player and then point out that it didn’t save them.

    5. Real world solutions???

      I don’t believe there are “real world solutions” because the things required to fix the problem are politically untenable–eliminating federal-backed student loans, making student loans dischargeable in bankruptcy, and dramatically reducing the level of “free money” given out in grants. There’s also a demand problem in that having a BA is considered the minimum these days to get even lower-middle-wage jobs, along with an administrative class in the universities that is now fully entrenched and can’t effectively be removed without causing a firestorm.

      In effect, the scale of the problem has grown beyond society’s ability to fix it.

  15. Something I’ve always wondered about is for-profit colleges. I’ve looked into it, and it sounds like just about all of them are pretty awful. However, I don’t understand why some entrepreneur hasn’t stepped up and offered an educational experience that truly prepares students for their careers without subjecting them to skyrocketing prices and Title IX bullshit. Why hasn’t this happened?

    Are there barriers to entry? Do the state/community colleges just fill all the demand? Are there actually for-profit schools that are great, but the media doesn’t report on them?

    I’m just wondering why the private sector hasn’t offered a solution.

    1. “I’m just wondering why the private sector hasn’t offered a solution.”
      Sorta like the mortgage market. The market is so distorted by government interference that there is more money to be made rent-seeking than providing a valid product.

  16. College: The more you go – the more you owe – the less you know.

  17. The problem is that kids don’t understand that higher education is not for everyone. A lot of them think of college as one and only way to success. They take loans, pay tuition and spend their time while no one can promise it will give them jobs they dream of. Some students I know even turn to services like Essay Lab to get better grades for their essays and win scholarships. Anything to stay in college. At the same time you don’t actually need college education to study on your own and improve your skills and knowledge for free.

  18. Not everyone can afford to go to college. We can’t afford to have everyone go to college. Now if only it was possible to have a decent life without going to college (or some other post-2ndary education) we would be set. It’s really necessary to help students in debt. This problem is so big so I wonder why still nothing changes into the better. I’m watching this problem because my cousin also has a college debt and it doesn’t allow her to live normally. She still lives with parents because she can’t afford renting own place because of the debt. My cousin used to acess online loan lenders directly to meet expenses.

  19. Nowadays every student can find a suitable college for himself, but unfortunately the price of tuition from year to year only increases. For this reason, I had to work to pay for my education and even sometimes just buy my homework at Paid Paper. Thanks a lot!

  20. When I was a student, I spent all my time studying new materials and subjects for me, but still I did not always have enough time for everything. because I still worked a bit. So I sometimes used and the quality of the work done I was completely satisfied, and most importantly that the price is very affordable.

  21. These days it’s not only expensive to study but it’s also harder that it was before. At least it really seems so to me. I mean, why do students have to do so many useless assignments? And I am not even surprised that services like Rapid Essay became so popular lately.

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