Does Federal Student Aid Help Students -- Or Colleges?
George C. Leef, The John William Pope Center for Higher Education Policy

One of the most important lessons anyone can learn about politics is that when government sets out to accomplish some objective, it often winds up doing the opposite. Rent control laws, for example, are supposed to help the non-wealthy who want urban housing, but the effect of rent control is to diminish both the quantity and quality of rental housing available for them.

With that point in mind, let's consider federal student aid programs. Congress has established a variety of grant and loan programs (budgeted this year at some $73 billion) that were supposed to help make college more affordable to millions of non-wealthy families. As the cost of attending college has risen, politicians have increased the amount of aid available. The trouble is that by doing so, the government gives colleges an incentive further to increase their tuition charges.

That is the conclusion of many economists who have studied the financing of higher education, including Hillsdale College professor Gary Wolfram, in a newly-released Policy Analysis published by Cato Institute. His study, Making College More Expensive: The Unintended Consequences of Federal Tuition Aid, argues in favor of a phase-out of all federal financial aid programs, with increased reliance instead on voluntary approaches.

"Basic economic theory," Wolfram writes, "suggests that the increased demand for higher education generated by the Higher Education Act will have the effect of increasing tuitions. The empirical evidence is consistent with that -- federal loans, Pell grants, and other assistance programs result in higher tuition for students at our nation's colleges and universities."

But wait -- isn't federal financial aid supposed to enable students to catch up to the rising cost of college? That may be the way parents and politicians think, but to college administrators, more money available to students means more money they can capture for their never-ending plans. There is no point where their desire to spend more is satiated, so there is no point where the paying parties can ever "catch up."

Instead of making college more affordable, the gusher of federal aid has made it possible for colleges and universities to add more degree programs (often of questionable academic or employment value), to hire more faculty and administrators whose services were not previously needed, and to expand into fields having at best a tangential relationship with education. The spending spiral naturally leads to demands for more financial aid because college is becoming too expensive, but more aid just leads to still higher college costs. It's classic political deception. Voters think that a government program is helping to bring about a supposedly desirable outcome ("making college affordable") while it actually benefits only a small interest group -- those who run and work for institutions of higher education.

Wolfram also notes that state governments have benefited from the federal student aid programs. Based on his experience as a trustee of one of Michigan's public universities, he observes that, "The net effect of federal grants may be that the state appropriation is reduced and tuition at state universities rises so that the state is able to capture some of the federal assistance in the form of a reduced higher education budget." Thus, the effect of federal aid is not to make state colleges and universities (where approximately 80 percent of students go) easier on the wallets of students and parents, but to make it possible for state legislatures to spend more money on budget items other than higher education.

Beside the unfortunate and unintended consequence of releasing colleges and universities from the spending restraints they would face if students weren't receiving federal financial aid, Wolfram raises another objection -- that federal money necessarily means federal regulation which threatens the independence of higher education. "For democracy to work," he writes, "it is important that the institutions that educate those who will participate in the democratic system be truly independent of the government." Federal money always comes with strings attached, taking us away from independent institutions.

One way that federal money undermines independence is the law requiring that any school wishing to be able to accept federal student aid funds must be accredited by one of the officially recognized accreditation agencies. The problem is that to a large extent, those agencies (which are private organizations) are dominated by individuals with "progressive" educational notions. Their focus is often far more on whether a school has what it deems to be an acceptable level of "diversity" in its student body and faculty than on the quality of the educational experience offered. The allure of federal money puts colleges and universities at the mercy of the accreditation groups.

What should we do? Wolfram recommends a 12-year phase-out of current federal aid programs. The consequences? "First, we would expect sticker tuition prices to decline. Second, the private market would respond to the phase-out of federal assistance. This would likely take three forms: additional private-sector loans, additional private scholarship funds, and the expansion of human capital contracts, which are similar to owning stock in the future earnings of a college graduate."

The blunderbuss federal aid approach has not only led to rising tuition, but has also subsidized students without regard to their academic prowess or interest. Private aid would probably be targeted much more toward students who really want to learn, rather than those just to go to college merely for the sake of getting a degree, or to have fun.

Federal student aid is another of the numerous instances where Congress has done something it is not authorized to do under the Constitution -- you look in vain if you search for language saying that Congress has the power to spend any money on education -- with results that are at odds with the purported intent of the program. So let us indeed get the government out of the business of subsidizing college and rely upon voluntary means of assisting college students instead.

NAS5:35 PM