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Federal government is causing the cost of education to rise


The Bennett Hypothesis, named for Bill Bennett, President Reagan’s education secretary, declares that government aid is primarily responsible for the rising costs of college. In other words, universities respond to increased funding by increasing tuition. Mr. Bennett was correct.

Tuition rises as subsidies of loans and grants increase

Increased subsidies affect the costs of education by causing both students and institutions to alter their behaviors. For students who finance their educations with loans, changes in tuition connect to borrowing. Tuition increases lead to more demand for loans, and loan supply affects equilibrium tuition costs. Federal aid intended to make college more affordable enables colleges and universities to raise tuition rates. Subsidies contribute to a cycle of higher prices and more subsidies that push prices too high for some.

More on education:

The government subsidy increases, and the schools raise tuition: for Federal Direct Subsidized Loans, by 65 percent, and for Pell Grants, by 50 percent. Increases to Federal Direct Unsubsidized Loans had little effect on tuition prices. With these increased rates, the ratios of teachers and professors to students have not increased. So we must assume that tuition increases are spent less-than-efficiently on bureaucrats, and not on education.

Never mind increases to subsidies causing rising prices; the subsidies themselves are detrimental to education and the workforce. Higher education is supposed to lead to the middle class and promote income equality. Policies promoting college attendance may have done that in the past, but now we have diminishing returns.
The concept of diminishing returns — the more someone has of something, the less benefit or satisfaction from additional units – applies to individuals as well as to societies. For individuals, eventually, the cost of education is greater than the benefit. For society, the first students drawn to college by government aid were ambitious and capable. College was beneficial to them, and their productivity helped society to prosper and to become more income-equal.

Now, the income gap is growing along with the costs of education. Subsidizing college has caused a glut of people with degrees. Now, those who have degrees displace those who don’t. Those who are capable of doing jobs, but don’t have credentials, don’t get the jobs; so, those without degrees – the working poor – have a harder time finding employment in fields that once were available to them. Federal student aid makes education more costly, and, because of the need for credentials, increases income inequality.

Well-meaning politicians who set us on this everyone-should-go-to-college path and continue to push it must believe that they are advocating greater productivity and equality. But they are not. Their college-for-all agenda is making this nation worse off. It is impossible to make college more affordable by increasing student aid.
While the Bennet Hypothesis is truer at some institutions than at others, it is, nonetheless, true.

“Common sense dictates a connection between government largesse to the buyer and higher prices from the seller.” –Robert Iosue, author College Tuition: Four Decades of Financial Deception.