Could Federal Aid Really Control the Cost of College?

NEW YORK (MainStreet) — When Secretary of Education Arne Duncan gave a mysterious statement on August 20 about the latest NPSAS report one could conceivably ask - is there anybody home at the Department of Education?

Some are beginning to wonder.

NSPAS is the National Postsecondary Student Aid Study. It examines the demographics of college students - particularly how they finance their education.

"The findings in the latest NPSAS report confirm the important role of federal financial aid in providing students with the opportunity to pursue higher education," Duncan said. "Federal grants and loans help students realize the American dream, opening the door to opportunity for students who would never be able to get a college education without financial support."

Duncan also said that more federal grants are being used to pay for college. He paid the obligatory paean to "President Obama's leadership" for expanding the Pell Grant program. He noted that this program provides billions of dollars a year in federal aid to low-income students. The number of Pell Grant recipients has increased more than 50% since 2008.

 

Then he made this claim which must be the ultimate non sequitur or a faux pas - in an administration that has had more than its share of both.

"But the data also shows that increasing federal student aid alone will not control the cost of college," Duncan said.

Increasing federal aid does not control the cost of college? There are reams of data indicating that increasing federal aid is precisely the reason colleges costs have increased.

"All of us share responsibility for ensuring that college is affordable," he said. "The NPSAS report is a reminder that we need state policymakers and individual colleges and universities to do their part in taking action against rising college tuition. Together we can take collective action to help make college more accessible, affordable, and attainable for middle class Americans across the country."

Grover J. "Russ" Whitehurst, the director of the Brown Center on Education Policy for the Brookings Institution, finds Duncan's declaration to be rather confusing.

"Secretary Duncan's statements on federal student aid are topsy-turvy," he said. "He asserts that increases in federal Pell grants during the Obama administration have led millions of students to attend college. But research shows that Pell grants have only small effects, at best, on the likelihood that young adults will enroll in college."

 

Then Whitehurst addressed Duncan's claim about increasing federal spending and controlling college costs.

"He seems to say that increasing federal student aid helps control the cost of college," Whitehurst said. "But increases in federal student aid drive up the price of a college degree, particularly at private and for-profit schools. These institutions are hogs at the trough, gobbling every financial morsel within their reach."

The Obama administration, Whitehurst noted, understands this, but its proposed policies as well as the president's and the secretary's rhetoric are confused.

Whitehurst outlined a proposed set of principles for a solution to the student financial bubble.

"We need a federal student aid system that is clear and predictable for prospective students and their families that encourages and enables students to shop for a college that provides good long-term return on investment, that incentivizes students to persist until they obtain a meaningful credential and that rewards institutions for enhancing their productivity," he said.

The current federal student aid system does none of those things, according to Whitehurst.

"That's why we have the most expensive higher education system in the world and only mediocre educational outcomes," he said.

There are those who claim that there is no correlation between increasing student financial aid and increasing tuition prices. For example, a spring 2012 article by Bryan J. Cook and Terry W. Hartle for the American Council for Education (ACE) claims that it is a myth that increasing federal financial increases tuition.

Other experts will say that while not all programs contribute to tuition inflation, some definitely do.

"Some things like Pell grants do not contribute to higher tuition," said Andrewn Gillen, an economist for the Education Sector, a nonprofit think tank in Washington D.C."But the Grad PLUS and Parent PLUS programs do contribute to tuition inflation."

Gillen ranks the federal programs in order of their impact on tuition increases as:

  • GradPLUS loans
  • PLUS loans
  • Tax Benefits (AOTC, Hope, Lifetime Learning, student loan interest deduction, etc.)
  • Unsubsidized Stafford Loans
  • Subsidized Stafford Loans
  • Veterans Benefits
  • Pell Grants

While there is some controversy about the effect of federal aid on tuition, most experts believe the addition federal money fuels tuition inflation. They say it is simply a question of increased demand via federal subsidies leading to increased prices.

One certain way to test the hypothesis is to stop federal funding entirely.

--Written by Michael P. Tremoglie for MainStreet

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