November 17, 2015

Government Loans Make College More Expensive, Worsen Income Inequality

The best of intentions has made a mess of higher Ed

George C. Leef
Tuesday, August 04, 2015

One day, Bill Bennett may be best remembered for saying (in 1987, while he was President Reagan’s education secretary) that government student aid was largely responsible for the fact that the cost of going to college kept rising. What is called the “Bennett Hypothesis” has been heavily debated ever since.

A recent report  by the Federal Reserve Bank of New York lends support to the Bennett Hypothesis.

Authors David Lucca, Taylor Nadauld, and Karen Shen employed sophisticated statistical techniques to analyze the effects of the increasing availability of federal aid to undergraduates between 2008 and 2010. They conclude the institutions that were most exposed to the increases “experienced disproportionate tuition increases.” 

By the authors’ calculation, there is about a 65 percent pass-through effect on federal student loans. In other words, for every $3 increase in such loans, colleges and universities raise tuition by $2.

It is very good to have a study by so unimpeachable a source as the New York Fed supporting the conclusion that quite a few others have reached over the years: Increasing student aid to make college “more affordable” is something of an impossibility. The more “generous” the government becomes with grants and loans, the more schools raise their rates.

Other studies have reached the same conclusion.

Click on Link:
http://fee.org/anythingpeaceful/government-loans-make-college-more-expensive-worsen-income-inequality/