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.