College Tuition is skyrocketing. Why? Administrative costs we know about. But what of federal aid itself?

3 Aug

From the WSJ:

Imagine a scenario in which the federal government helps households pursue the American dream with ultra-loose credit, only to see prices skyrocket and families take on loads of debt they can’t repay.

Yes, it sounds like the housing market of a decade ago, but some say it is also the challenge of today’s higher-education system.

The federal government has boosted aid to families in recent decades to make college more affordable. A new study from the New York Federal Reserve faults these policies for enabling college institutions to aggressively raise tuitions.

The implication is the federal government is fueling a vicious cycle of higher prices and government aid that ultimately could cost taxpayers and price some Americans out of higher education, similar to what some economists contend happened with the housing bubble.

Conservatives have long held that generous federal-aid policies inflate higher-education costs, a viewpoint famously articulated by then-Education Secretary William Bennett in a 1987 column that came to be dubbed the Bennett Hypothesis.

Now, more mainstream economists and academics are adopting that view, or at least some variation. And while college institutions reject the notion that they game the federal student-aid system to jack up prices, many higher-education officials concede there is a pricing problem, and changes are needed.

Read the rest

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