Bloomberg, WSJ: Student Aid Increases Tuition

retroworks writes "Bloomberg News makes the case that when the federal government offers tuition assistance, students apply to more expensive colleges, giving the institutions an incentive to raise tuition and a disincentive to lower it. (The Wall Street Journal has a similar article, but it's paywalled.) This reminds me of the debate over President Reagan's cuts to the Pell Grant program in the 1980s. MIT's Campus Paper 'The Tech' quoted the MIT administration as saying it had 'no idea what really will occur' when Reagan's proposal to cut Pell came to Washington. So the question is, 25 years later, do we know now? Did cuts to federal tuition assistance hurt the education of the lower income students? Did increases to Pell grants create more opportunity? Or is federal money the milkshake, and students are just the straw?"

Comments

well, duh

[therealkevinkretz]

If more money is made available to to students for education, then:

1) more people will become students (intended)

2) educational institutions will raise their prices so as to absorb all the available funds (unintended)

Re:well, duh

[Anonymous Coward]

If I am a school and I have learned that students can borrow $60,000 a year from the government, then I am sure as hell I will raise my prices to get htat "free money".

Re:well, duh

[ohnocitizen]

If tuition assistance evaporated, enrollment would drop. With less students coming in, would universities:

1) Cut payroll/pay/offerings significantly
2) Raise tuition to make up the difference
3) Lower tuition significantly enough to reach students who can't afford college without assistance
4) Find non tuition based forms of funding
5) Fold

I think 3 is incredibly unlikely, and the original article is a bit foolish not considering the other side of the coin. 2 Doesn't seem likely (or wise) either. That leaves 1 (which I've seen happen over and over again in the face of budget issues), 4 (which works for a few universities, but isn't sustainable for all of them) and 5.

Of all the likely results of ending college tuition assistance, the most likely involves a few private institutions thriving, and most public/private institutions massively cutting their programs and pay. More electives suffer the cost of a society that increasingly doesn't value education beyond the immediate "will this turn our kids into productive workers", and the already tight job market for professors tightens (with less pay at the end of the road).

If we want to continue having the types of colleges and universities that truly enrich our society, we need to find smarter ways to make them more accessible than cutting tuition assistance.

Re:well, duh

[demonlapin]

Just because schools operate as not-for-profit enterprises does not mean that people don't make money off them. Administrators like bigger budgets and paychecks.

Re:well, duh

[moeinvt]

This is a great discussion.

Try visiting Yahoo! news or Politico or Huffington Post and explaining how guaranteed loans make college more expensive and you get flamed and accused of being a rich 1%er that only wants wealthy kids to go to college.

Visit /. and there's no need to explain the obvious.

"well, duh"

Succinct AND accurate

Bravo.

Re:well, duh

[Rostin]

Most universities could stand to trim some fat. Administrative costs in higher education have mushroomed in the past few decades. For example, at the very large public university where I'm a grad student, we have an office of "diversity and community engagement." The person in charge is one of the vice presidents of the whole university. Several assistant VPs, associate VPs, executive directors, etc are also employed by the university to lead different portions of this office. Each of these people has a staff, of course. According to the organizational chart, which I'm looking at right now, they come to a total of 44 people. All to address diversity concerns, or something. I'm actually not sure what they do. It seems somewhat doubtful that the expense of employing 44 people (which must run into the millions or maybe even the tens of millions of dollars per year) is actually accomplishing much of real value.

Re:well, duh

[ThatsLoseNotLoose]

Mabye not, but a Pell grant isn't a loan. I wouldn't borrow $60k for education, but there's no way I'd turn down a grant.

Re:well, duh

[ifwm]

Minimum wage in this country is a joke, and while raising it to be a living wage would, indeed, cause some short-term loss of jobs, over the longer term, as the poorest working people were measurably better off and able to spend more money, it would contribute greatly to the country's economy.

So, did you not bother reading the article that proves you wrong?

Inflation kills when you raise minimum wage.

It's been proven so many times that I can't believe this nonsensical trope still has legs. It's like you completely ignored the story and the downside of inflation.

Re:well, duh

[Githaron]

While student loans are not free money, I doubt most students realize how much money it actually is and the ramifications of taking on such a loan. Most students don't think about student debt until after they graduate.

Re:well, duh

[Billly Gates]

It you did that today that loan would be $60,000 and not $2,000.

No, that part time job at the book store will not cover your tuition either. You would be fucked if you tried to do it over and this is why the younger people are angry as the older generation does not see the inflation with the economy after graduation picture. The world has changed

Re:well, duh

[vlm]

you know, if you had spent 25 bucks a week more on food (probably more than you would need to) you would have accrued 5K or so more debt over 4 years. While that seems like a lot, the benefits, both physically and mentally, of not being malnourished while you were in school

Most important life skill at high school graduation is knowing how to cook. Not how to read directions on a frozen pizza wrapper, but really cook. Aside from the obvious health benefits its incredibly freaking cheap and tasty food simply puts you in a better mood, not to mention how the ladies enjoyed my home cooked meals. Try to survive on hot pockets and McD value meals and Raman and you won't live well or long.

Re:well, duh

[Darth Snowshoe]

The problem is that not everything should be, in a reasonably just society, subject to the unmitigated forces of the market. Senator Ryan imagines families taking their medicare vouchers and shopping very carefully for the most cost-efficient medical care. It doesn't happen that way. If your grandmother arrives at the emergency room, having received CPR on the ambulance ride, you don't want to have to shop around. You want care right then - in the room that she's currently occupying.

Similarly, your daughter wants to be a geologist. But the best geology program is (I'm making this up) North Dakota State. You don't have the option of moving your family to North Dakota to score in-state tuition. You can't tell her that her best option financially is to study to become a nurse instead. Education is not a commodity that you buy by the pound or by the linear foot.

Most people understand that a higher education is their best option for improving their lot in life. It's dawned on universities that they sell something of high, but uncertain, value. They realize they can raise their prices to compensate (and some, simply to take advantage). Do you want the higher education your kids are getting to be a shell game, where some of them are guaranteed to get the value out of it that they put into it, and some of them do not?

The truth of the matter is that, over the course of the last few decades, federal and state subsidies to private and public universities, and also to academic research generally, have shrunk and shrunk. Private loans to individual students are a poor compensation for that. Even people who never have kids of their own derive some value from living in a society where higher education is valued and pursued.

One of the reasons that the best and the brightest from around the world come to America is that they perceive the value of a university education here to be high compared to elsewhere. If that becomes no longer true, there will be less motivation for talented people to come here and participate in our economy.

Re:well, duh

[Solandri]

Minimum wage in this country is a joke, and while raising it to be a living wage would, indeed, cause some short-term loss of jobs, over the longer term, as the poorest working people were measurably better off and able to spend more money, it would contribute greatly to the country's economy.

This is so misguided. You're putting morality ahead of reality.

Making the minimum wage a living wage is equivalent to saying anything you can be paid for doing, you should be able to do for a living. Now think about that. I pay kids to shovel the sidewalk for me in winter. Should an adult be able to make a living doing nothing but that all his life? The economy is full of different kinds of jobs, ranging from difficult ones which pay a lot, to easy ones which pay a little but are good working experience. If you raise the minimum wage to where it's a living wage, you're not making life easier for those in those low-end jobs, you're eliminating those jobs from existence.

The whole point of paying people for a job is that the value you get from them doing the job (the productivity they generate) exceeds what you're paying them. I pay the kid with the shovel $8/hr because I can use that hour I save to earn more than $8 (or I value the free hour I get to spend with my family more than $8). You pay the burger flipper $8/hr because by selling the burgers you can net more than $8/hr in earnings. If you can't net more than you're paying them for their labor, there is no point having them do the job. You'd lose money doing it. In other words, it would detract from the country's economy, not contribute to it.

e.g. If you raise the minimum wage to give the janitor a better living, he doesn't get a better living. The company which hired him to clean the offices once every week? It's no longer cost-effective to have him clean every week. The clean office was worth (say) $80/wk, and they were paying him $64/day to clean once a week. Now you raise his wage to $100/day. What's going to happen? It's no longer worth it to clean once a week. So they reschedule him to clean every other week. He's making more money per hour, but he (and all other janitors) are working fewer hours. They'd be the same or worse off than before, and everyone's offices are dirtier. All because you've artificially priced labor above what it's really worth.

Don't get me wrong; I completely support a minimum wage to prohibit exploitative labor wages. But people have got to shake ridiculous the notion that somehow every job is something that an adult should be able to make a living doing, and thus the minimum wage should be a living wage.

Re:well, duh

[dohnut]

However, I do know that there are plenty of places where youmay not make minimum wage, but you still don't make anywhere close to enough to live on, and no matter how long you work there (doing a good job, showing up on time, etc), you have no guarantee of making more.

Yet, apparently, they keep showing up for work and are able to feed, clothe, and shelter themselves in some fashion. Me? I'd move to somewhere where it wasn't so expensive to live. If everyone does that then the business will have no choice but to increase wages or die. I've got no sympathy for someone in a bad situation that does nothing to change it -- especially in America where you have the freedom to do exactly that.

I have personal knowledge of a job making $8/hr at a chocolate store, where the owner is on the lookout for more adults to hire, part time, for that much money, on a long-term basis. And has no intention of raising the pay, making a full-time position, or anything of the sort.

Then the owner can pound sand. Oh, it's the best job offer on the market? Well, maybe you should take it then? Or move. Or start a competing business. Etc.

Pretend I'm typing this in all caps and I'm using lots of exclamation points: You cannot have a living minimum wage. And definitely not in a global economy.

Let's go extreme. Let's raise the minimum wage to $1,000,000/hr. Hell we'd all be living in mansions and driving Bentley's right? No? Why?? Well guess what, those same problems exist (albeit on a smaller scale) even when you bump the minimum wage from $7.25 to only $7.50. There is a short term bump and then inflation and job losses bring everything back into balance. Meanwhile you've just lowered the value of everyone's cash savings. So, in the long run, you've manged to do nothing for the working class and you've reduced the net worth of the middle class and probably screwed over most retirees. Hooray! The rich are OK (of course) since they have their money tied into investments that appreciate with inflation.

I'd love to see America try a free market once -- just once. No more minimum wage. No more corporate welfare or subsidies. No more laws and loopholes for the rich and entrenched interests. A flat tax system. Etc.

Re:well, duh

[Anonymous Coward]

You must have graduated a while ago.
I busted my ass and lived in squalor to graduate with a manageable $50k in debt instead of an unmanageable $100k.

Re:well, duh

[Genda]

Its not just inflation. At every turn (looking at the California State college system because its one of the largest, best, and most endangered) the Colleges of California are in operational freefall from the Top UCs to the community colleges. With the slow motion disaster that is our state government and state sources of school funding drying faster than a spit puddle in Death Valley at high noon, the cost of tuitions have literally SKYROCKETED, Administrators, insensitive to the disaster have voted themselves huge pay raises while cutting courses and eliminating teaching jobs like there's no future. With every turn the State's education system tries to run schools on less resource, and squeezes the students ever harder, applying tuition hikes on top of tuition hikes. A growing percentage of students are being priced out of their education in mid school attendance. A quality higher education in California will soon be well beyond the reach of any normal middle class family, and require a level of saving and scrimping starting at a child's birth that most families are neither equipt nor interested in making.

We need a system that maintains high standards and demands that students are serious about pursuing that degree, but once the student has demonstrated the desire and the capacity, we need to provide all the resources we can to ensure that student receives the education they desire. Every measure of economic health tells us that well educated professionals are a boon to the economy, leaders in their various communities, and return the investment in their success dozens of times over. With the accelerating technological challenges facing our society, we can't afford not to have a well educated, disciplined and intellectually proficient society of clear and cogent thinkers. The alternative is to hope we can HB-1 our way through the future, and I hate to be the one to tell you, but a growing number of those children are going back home with their knowledge, business experience and professional acumen. We've virtually bankrupted our economy, let's not do the same with our children's future.

What about state budget cuts?

[jpstanle]

Increased availability of aid and loans may very well create some tuition inflation, but I seriously doubt it is the major driving factor at public universities. It took me a while to graduate since I got called up to active duty for a while, but the tuition at the in-state public land grant university I attended nearly doubled between when I entered as a freshman and when I graduated. In 2003, tuition and fees was about 2200 USD/semester, but had ballooned to just over 4000 USD/Semester in Spring 2011. As far as I am aware, there hasn't been massive increases in the availability of aid or loans in that span (in fact, I'd argue generous private loans have become LESS available since 2008). What HAS happened is massive state budget short-falls due to economic downturns and short-sighted tax cuts. When the state is short on cash, higher education funding seems to always take the brunt of the damage in budget cuts, so public universities make up the difference by hiking tuition and/or recruiting out-of-state students.

Re:What about state budget cuts?

[phlinn]

Is it federal funding when the federal government backs nominally privately offered student loans? By, for instance, not allowing most bankruptcies to include them? There are a lot of steps the federal government takes to relieve private banks of the risk that would otherwise be incurred. They turn nominally private loans into a lucrative rent system.

Re:Demand, meet supply

[Chris Mattern]

Entirely inelastic? No, nothing is entirely inelastic. Mostly inelastic? I suspect so; the resources to put together a high-class university are scarce, and the barriers to entry are high.

And TFA is just poorly written.

[khasim]

From TFA:

First, universities, unlike the taxpayers, suffer no financial consequences when the underqualified students they have lured into their academic programs ultimately default on their loans.

"lured"? Kind of showing their bias, aren't they?

Second, students who study six years but ultimately drop out receive more financial aid than the diligent "A" student graduating in three years: We reward mediocrity and punish excellence.

How is getting something done in half the time a punishment?

Again, there's quite a bit of bias showing in that article.

Third, there is no adjustment of student-loan interest-rate terms to meet market conditions or differing risk factors relating to individual repayment prospects.

So they're pushing for different interest rates depending upon your major?

Fuck that! How about some GRANTS for people in the hard sciences?

Fourth, the Free Application for Federal Student Aid form, associated with these programs, aside from being unbearably complex, gives colleges private information about family finances that allows them to gouge students more.

Stick to a single point in each point, okay? Either they're "unbearably complex" or they give too much information about family finances.

Fifth, colleges' tuition and fee policies drive the amount of loan volume, rather than the other way around, thus contributing to the college-cost explosion and the subsequent academic arms race.

What "academic arms race"?

TFA needs an editor who is not looking to grind the same ax as the author.

Ugh, not this again

[guises]

This is ridiculous, I feel like I have to post some obvious correction every time some republican politician opens their mouth about money these days:

https://www.npr.org/blogs/money/2012/05/22/153316565/the-price-of-college-tuition-in-1-graphic

(Spoiler: tuition increases are not related to student loans)

Usually when I say stuff like this I try to keep it apolitical, but it's really gotten out of hand - republicans vilify every single thing that the government does nowadays (except the military, and state secrets, and domestic spying). Yes, Bloomberg is a republican politician (even if he's officially independent like Lieberman), and the WSJ is a republican mouthpiece just like every other Murdoch rag. I'll stop there, I don't want this to turn into some long rant, but come on: you can't use some twisted logic to turn lowering taxes into the solution for everything.

Re:Schools Raise Tution Regardless

[tmosley]

Not because A student has A Pell Grant, but because ALL of their students have access to ANY AMOUNT of money via government guaranteed loans.

You might as well tell us that housing prices didn't go up due to lax lending standards. Same damn thing, only now the debtors can't get out by any reasonable means.

Re:Applies to many situations

[Hatta]

Back when I lived in Minnesota there was a big todo over welfare moms having more children simply to get an increase in welfare aid.

Which is almost certainly a complete fabrication on the part of conservatives. State aid is never enough to pay for all the costs a child incurs. Did they have any actual data on how often they claim this occurs? Or did they just make something up (in the grand tradition of Ronald Reagan), and harp on it until people thought it was a real problem?

Re:LoL

[Nimey]

Explain to me why we should compare ourselves to third-world shitholes instead of other first-world secular democracies.

Other than the fact that conservatives would rather us be a shithole because their taxes would be lower.