So you think the cost of college is outrageous and indefensible? You’re absolutely right!
“From 1987 to 2010, sticker price tuition and fees ballooned from $6,600 to $14,500 in 2010 dollars. After subtracting institutional aid, net tuition and fees still grew by 78%, from $5,790 to $10,290. To provide perspective, had net tuition risen at the rate of much maligned healthcare costs, tuition would have only reached about $8,700 in 2010.” In other words, cost of education is increasing so fast that we’d be lucky if it were only as bad as our health care system. Unfortunately, it’s worse.
One prominent idea as to why tuition is rising so fervently is that schools, seeing that their prospective buyers are able to pay more due to increased financial aid, will simply raise tuition, mostly offsetting the good intentions behind said financial aid. This paper tested and apparently confirmed that theory.
“These results accord strongly with the Bennett hypothesis, which asserts that colleges respond to expansions of financial aid by increasing tuition. In fact, the tuition response completely crowds out any additional enrollment that the financial aid expansion would otherwise induce, resulting instead in an enrollment decline from 33% to 27% in the new equilibrium with only demand shocks. Furthermore, the students who do enroll take out $6,876 in loans compared to $4,663 in the initial steady state. The college, in turn, uses these funds to finance an increase of investment expenditures from $21,550 to $27,338 and to enhance the quality of the student body. In particular, the average ability of graduates increases by 4 percentage points (pp). Lastly, the model predicts that demand shocks in isolation generate a surge in the default rate from 17% to 32%. Essentially, demand shocks lead to higher college costs and more debt, and in the absence of higher labor market returns, more loan default inevitably occurs.”
This is an unfortunate dose of harsh reality. What it means is, despite education being one of the greatest financial burdens on our youth, we MUST stop “helping” them. At least, we must stop “helping” in the way that we presently are, because it’s NOT actually helping. The aid is, in a very counter-intuitive manner, HARMING people. It’s resulting in tuitions that are harder to afford and loans that are harder to repay. Most people are simply not willing to accept the harsh reality that “student aid” is INSTITUTIONAL aid. It benefits the institution, its employees / educators, its leaders and coffers. What it does NOT help, unfortunately, is the nation’s youth.
The government needs to stop throwing money at the problem; it’s not working.
The full study can be read here:
Taken from HERE