Campus Free Speech

How the Federal Government Is Ruining College Education

Federal financial aid programs hurt graduation rates and encourage colleges and universities to jack up tuition.


Here's a great idea for a new government program that is sure to help lots of people.

We all know having good transportation is essential, but not everybody can afford to buy a car. So Washington should start giving low-income families loans and grants to help them do so. This will not only make them happy, it also will make automakers and car dealerships happy. Probably very happy.

True, car companies could simply raise vehicle prices. If they do, then we should simply raise spending on loans and grants to compensate. Car companies would not raise prices more than once, right?

But there's one thing we should not do: Keep track to see how many participants in this new program actually put a car in the driveway. What's the point? We need to focus on access to transportation—not actual improvements in it.

Wait—you don't think that's a good idea? You think it will simply lead to an upward spiral of car prices and massive increases in government spending that far outstrip the actual benefits? Clearly, you don't know what you are talking about—because this is precisely how the federal government has been treating higher education for decades. And just look how affordable college is now.

Affordable? Ha. Tuition over the past four decades has nearly quadrupled. And contrary to what college presidents would have you believe, this is not because of deep cuts in public funding. As a recent piece in The New York Times noted, government spending on higher ed "has increased at a much faster rate than government spending in general. For example, the military's budget is about 1.8 times higher today than it was in 1960, while legislative appropriations to higher education are more than 10 times higher… State appropriations reached a record inflation-adjusted high of $86.6 billion in 2009. They declined as a consequence of the Great Recession, but have since risen to $81 billion."

Government financial aid also has soared. Federal spending on Pell Grants—given to college-bound students from families making less than $60,000 a year—has roughly tripled in nominal terms since 2002, and more than doubled after adjusting for inflation. Yet a study last month by the Hechinger Report, a New York-based education nonprofit, shows more than a third of Pell Grant recipients still have not graduated after six years. Spending on Pell Grants since 2000 totals a third of a trillion dollars, yet much of that money leads to a dead end. And "the more Pell students an institution enrolls," Hechinger notes, "the lower their likelihood of graduating."

Not surprisingly, Hechinger needed pliers and a crowbar to get this information from some of the more than 80 public and private universities it surveyed. But it's backed up by a report (PDF) by the U.S. Department of Education commissioned last year. That report—the first federal effort ever to gauge graduation rates among Pell Grant recipients —is even more damning. As a cover letter from Acting Assistant Secretary Lloyd Horwich notes, "for Pell Grant recipients who began attendance at a four-year institution in 2007-2008, 38.82% graduated from any four-year institution within six years." Another 6 percent graduated from a less-than-four-year program.

This would be troubling enough all by itself. But the tsunami of federal financial aid also has allowed colleges and universities to jack up tuition. Who says so? Any Econ 101 instructor—and the Federal Reserve Bank of New York, which published a study (PDF) on the subject in July: "When we control for all forms of aid, we find that each additional Pell Grant dollar to an institution leads to a roughly 55 cent increase in sticker price tuition." Subsidized loans, by the way, have an even greater effect: "For subsidized loans, we find a somewhat larger passthrough effect of about 70 percent." Even unsubsidized loans hike tuition by 30 cents per dollar.

True, many colleges discount their tuition for large numbers of students. But that offers only so much comfort in an era when the average cost of a year at college, with room and board, is $19,000 in-state and to $30,000 out-of-state.

To its credit, the Obama administration is seeking some minimal standards of measurement and accountability from higher-ed institutions. But the two Democrats who would replace him (and perhaps Mike Huckabee as well) want to continue the historical trend by shoving more money and buyers in the front door of the dealership, without worrying about how they come out on the back end.

Bet they have a sweet deal for you on fabric protection and rust-proof undercoating, too.

This article originally appeared at the Richmond Times-Dispatch.

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  1. The cynical side of me thinks that most politicians (aside from the truly economically clueless, like Bernie Sanders) realize that additional subsidies to college education doesn’t make it more affordable, but they also realize that their constituents, who are largely economically illiterate, want them, so they give them in order to stay in office.

    The really cynical side of me thinks the politicians know this will make thing worse, only calling for politicians to do still more to “fix” things, perpetuating the cycle of dependence.

  2. I agree. It’s a total mess. Leads to abuse by barely certifiable “colleges”, creates zero incentive for schools to use money wisely, and results in debt that takes decades to pay off.

    However, there is one factor that barely gets mentioned, I feel: the impact of the Bankruptcy Code. It is nearly impossible to discharge student loans in bankruptcy, unlike every other form of consumer debt. There is literally zero risk to a lender in giving out this money. I can understand not letting people discharge right out of school; but if somebody is suffering under this debt load 10-15 years after graduating, what objective is served?

    1. You know why student loans aren’t dischargeable in bankruptcy? They used to be. And then a whole slew of law school graduates in the late 1970’s tried to game the system – going deep into law school debt, declaring bankruptcy, and then resuming their high-paid career/partnerships.

      1. I know why it was done. Those stories were mostly urban legends: nobody has been able to actually find a single instance where that happened.

        Even if true, yeah, that is transparent abuse which is completely preventable by saying you can’t discharge recently-acquired student debt.

        1. Graduate programs are by definition extensions of education that push out any fixed definition of ‘recently-acquired’. And there is no urban legend here. The current bankruptcy court ‘test’ for student loans is named the Brunner Test – from Marie Brunner


          She filed her bankruptcy to have the loan discharged 10 months after she graduated from a Masters Program – which was six years after she took out the undergraduate loan. This stuff can go on and on forever. First student loan coming due? Well go to school for another year – and incur more debt to do so.

          And yes – law school grads were the post-grads most likely to both a)extend their grad school days and b)play games in bankruptcy court challenging existing bankruptcy law re student loans

      2. So why did the government need to step in? It seems like banks should have been able to handle this by requiring cosigns from people who can’t declare bankruptcy that easily, or maybe worked it out with schools that if they wanted students to have easy loan money to pay them with they had to revoke diplomas of people who discharged their student debt.

      3. They weren’t the only ones.…..fdqRJfqVyE

        Even O.J. moved there to protect against the expected lawsuit.

  3. So even the New York Fed acknowledges that the supply of education credit creates pure inflation in education. And the implication is that the supply of mortgage credit creates pure inflation in housing. And the supply of financial sector leverage creates pure inflation in financial asset prices. The supply of government debt creates pure inflation in government. And while I doubt the Fed will admit that the entire economy – including the govt sector – has long ago passed thru productive borrowing and into ‘speculative borrowing’ (cf education) and ‘Ponzi borrowing’ (cf govt debt); the reality is that it has.

    But if god forbid the Fed actually restrains credit (ie money supply) growth; then the result is gonna be the big bogey of ‘deflation’. Which will mostly affect precisely those who have most benefited from the previous credit binge – those with big housing tax-advantages; those with big financial portfolios; cronies around the govt trough; the slew of highly-credentialed but useless ‘jobs’ in/around academia. IOW – the Fed is pretty much the main thing that keeps many of the rich and connected – rich and connected.

    Man – I wish some pol had the cajones and rhetorical skills and policy alternatives to blast thru this status quo bs into the rational populism on the other side.

  4. So, what’s your problem?

    Is it a political? financial? career?, relationship? health?, privacy? or a freedom problem?

    Or something else perhaps?

    Maybe I can solve it for you – maybe not. Only one way to find out :-).

    Problem Solving/Personal Freedom Consulting for 20+ years.

    Onebornfree Personal Freedom & Problem-Solving Services

    1. It’s true! My aunt made like four quazillion dollars working out of my dungeon.

    2. My government is WAY the hell too big, is my main problem! Go fix it for me, and then I will pay you; the check will be in the mail!

    3. Oh look, it’s the free market separating idiots from all that pesky money they have sitting around.

  5. And don’t forget about the truecoat!

  6. What hasn’t the Federal Government FUBAR’d?

  7. Uh, the government is already helping low income people buy a car by providing them loans to get one. My county is doing this. It’s called “the keys” program.

    What it really does is provide gainful employment for a bunch of not so poor, public employees under the guise of “helping” the poor.

    This from the same government that is trying to restrict/limit VMT and coerce people onto public transportation. Which is also government subsidized.For the environment, the children and all those other good reasons of course.

    Hey, we’re from the government and we’re here to help!

    It smells of tobacco subsidy for growers with anti-smoking campaigns for citizens at the same time. It’s just so rational.

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  9. I know the right answer: whatever they do, whatever decision they make, they always ruing education. And, for God’s sake, college education? Really? With their actions there will be nothing to ruin soon enough. I am sure you are all aware of the fact that students use best essay writing service reviews online to get through the graduation. I am sure that this is a sign for us that something is really wrong with college education. I just don’t understand why very few people see it.

  10. Some students thrive at community colleges. Some students thrive at for-profit career colleges. Suggesting that community college can take the place of career college as a wholesale solution is to overlook the performance of community colleges at graduating students, let alone students with the most problematic foundations for future academic success. Based on all my researches for write-my-thesis into education I’d say, community colleges serve many purposes and, given their broad mandate, their ability to serve any one student segment should be understood in that context. They are, however, far from constituting a cure-all for the nation’s sizable cohort of at-risk students. Has the Obama Administration served the public by putting ITT out of business, pushing multiple thousands of otherwise under-served students toward uncertain futures, and casting a shadow of doubt over hundreds of thousands of others who have graduated from ITT in the last 50 years? Perhaps the study of whatever happened to Corinthian students is already underway. If a large percentage are not now graduating from community colleges, however, the true tax savings of this assault on for-profit career colleges seems questionable.

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