Friday, October 11, 2013

Government Subsidies Responsible For High College Tuition And Unaffordability Of College

From The Wall Street Journal, "Richard Vedder: The Real Reason College Costs So Much The expert on the economics of higher education explains how subsidies fuel rising prices and why there's a 'bubble' in student loans and college enrollment." by Allysia Finley:
College costs have continued to explode despite 50 years of ostensibly benevolent government interventions, according to Mr. [Richard] Vedder, [Director, Ohio Universoty's Center for College Affordability and Productivity, author of book "Going Broke by Degree: Why College Costs Too Much"] and the president's new plan could exacerbate the trend. By Mr. Vedder's lights, the cost conundrum started with the Higher Education Act of 1965, a Great Society program that created federal scholarships and low-interest loans aimed at making college more accessible.

In 1964, federal student aid was a mere $231 million. By 1981, the feds were spending $7 billion on loans alone, an amount that doubled during the 1980s and nearly tripled in each of the following two decades, and is about $105 billion today. Taxpayers now stand behind nearly $1 trillion in student loans.

Meanwhile, grants have increased to $49 billion from $6.4 billion in 1981. By expanding eligibility and boosting the maximum Pell Grant by $500 to $5,350, the 2009 stimulus bill accelerated higher ed's evolution into a middle-class entitlement. Fewer than 2% of Pell Grant recipients came from families making between $60,000 and $80,000 a year in 2007. Now roughly 18% do.

This growth in subsidies, Mr. Vedder argues, has fueled rising prices: "It gives every incentive and every opportunity for colleges to raise their fees." [Emphasis added.]

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