College Tuition Rates Rise According to Amount of Federal Money Institution Receives – Here's Why

Sen. Claire McCaskill started in on her fear mongering, class warfare spiel on the need for federal money for college tuition. She told the students and faculty there...

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Sen. Claire McCaskill started in on her fear mongering, class warfare spiel on the need for federal money for college tuition. She told the students and faculty there that if the federal government didn’t offer loans and grants, only the rich would go to college.

Her premise was challenged:

“Isn’t it true that government guarantees of student loans is one of the driving causes of increasing tuition rates?”

This happened almost three years ago. There were studies then McCaskill should have known about.

President Ronald Reagan’s Secretary of Education Bill Bennett said in 1987, “…increases in financial aid in recent years have enabled colleges and universities blithely to raise their tuitions, confident that Federal loan subsidies would help cushion the increase.”

In 1988, this was again shown to be the case, not only in higher education, but in most areas where the government “helped.”

In so many areas, ranging from telecommunications to agriculture to electric power, government “help” in the form of subsidies has allowedfirms to raise prices above the market price, encouraged waste and inefficient “cross-sub-sidies” (overcharging one customer to subsidize another), and created an ever-increasing “need” for government expenditures. The higher education market operates in the same manner.

Indeed, is there anyone out there who says a young person can attend college without help from the government? It was exactly what Sen. McCaskill was preaching to her choir. Without government expenditures, no one but the wealthy would be able to go to college.

Even Vice-President Joe Biden admits government subsidies of education cause tuition to increase. In 2012, he said, “By the way, government subsidies have impacted upon rising tuition costs. It’s a conundrum here.”

Not only that, but he reinforced the position that removing government subsidies would cause tuition rates to lower:

in a pure free-market the college tuition would have to be lower because there would be fewer people going to school, they wouldn’t have as much coming in.

Despite the decades of writing detailing the impact government subsidies have had on college tuition rates, McCaskill was adamant she was ignorant of the correlation.

She may not be able to ignore a recent paper from the Federal Reserve Bank of New York, however, which again shows federal tuition loans are fueling increases in tuition rates.

The study found that for every dollar a college receives in Direct Subsidized Loans, it jacks up the price of the whole college experience by 65 cents. This should surprise no one.

It’s basic economics: supply and demand.

Professor Daniel Lin explained why this happens in 2012:

Although many believe subsidies will make college more affordable, government subsidies actually contribute to rising costs. “When you subsidize something, it’s cheaper for people to consume. So people consume more of it and demand rises,” Professor Lin says. A rise in demand will mean a rise in costs.

So what is the solution?

Assuming subsidies for higher education end, the cost of tuition would drop. This would make scholarships more attractive and 529 plans more powerful.

Schools could also work with corporate interests to recruit talent and perhaps partner with students, paying their tuition in exchange for a percentage of their earnings or a pledge to work for the company a set amount of years.

This would actually put a larger emphasis on academic achievement, as students who wanted to attend college would be competing to earn what is essentially sponsorships from future employers.

Many employers already offer tuition reimbursement plans.

But what about what Vice-President Biden said, that there would be fewer going to college? Well, that’s not a bad thing. Not everyone needs to go to college. Economist Robert Lerman noted at PBS that “Apprenticeships are a better way to achieve economic equality than pushing everyone into the same track of a four-year college degree.” There are an estimated 3 million labor jobs and 90 percent of them don’t require a college degree. Plus, most of them pay more than office jobs. For example, plumbers can easily make more than $100,000 a year.

There are other options, other paths that lead to the upper and middle class. That path certainly doesn’t lie in burdening young Americans with excessive student loan debt, made worse by the program designed to help.

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  1. Keith Glass Reply

    You fail to mention the OTHER upside of fewer institutions of “higher learning”

    Quote “Academics” unquote being forced to deal with the free market they spent years denigrating, and finding what they taught their former students was utterly useless.

    And widespread schadenfreude, elsewhere (grin)

  2. john Reply

    So Claire is the problem eh?

    Interesting, I read the study from the Federal Reserve of New York and my recollection is they pointed squarely to these free market FOR PROFIT colleges as the cause of the rise in student Aid. Whose idea were those?

    There appears to be a very clear root cause to be fixed here that’s not student aid and not Claire McCaskill.

    1. Duane Lester Reply

      You don’t understand economics or read too well, do you?

      Please point out where the free market education system is in this country. I don’t see it anywhere. It doesn’t exist. Oh, and point to where I said Claire was the problem. Straw men don’t fly around here, john.

      The report says for every dollar in government loans, tuition goes up 65 cents. If the government weren’t taking people’s property and redistributing it via government loans, would tuition be going up like it is? If it were a truly free market, would it?

      The root cause here is government meddling in the market.