Does Student Aid Cause High Tuition?

Most of us worry that student aid isn’t keeping up with tuition costs, but what if increased aid was actually causing the tuition to rise?

This isn’t a new concept - for years, people have compared college cost to health care, where third party payers cover much of the cost and hence allow high prices to keep going up. But, not much has changed.

In a new article at Slate (originally published at InsideHigherEd), Ellen Wexler describes a new paper on the topic and offers input from other experts:
http://www.slate.com/articles/life/inside_higher_ed/2016/02/student_aid_accounts_for_rising_college_costs.html

A thoughtful look at a complex issue…

The issue of college costs is definitely complex. So its not the case that there is one cause. Or that simply because X may be helping to drive costs up that y and z are also not also doing the same.

As a matter of basic economics, if you subsidize something you will get more of it and the price will increase (see as noted healthcare). Financial aid and scholarships are a form of subsidy. Unless they are somehow tied to cost efficiencies (which they are not today), how can those subsidies not put upward pressure on price?

The question is whether this statement is accurate or not:

I’d have to see the study and data to determine if I agree. TBH I find it hard to believe. I think costs were climbing Much more quickly than any student aid.

Would be interesting to see the data backing up the paper.

But just thinking about it on a very high level, real incomes for middle income families have largely been stagnant for several decades. So it seems unlikely that people have either more cash to pay for college out of current income or college savings. College costs have increased over that time – by a lot. What is making up the difference? Student aid (in the form of scholarships, grants, loans, etc.) is at least making up a big part of the difference. Without the student aid, would college costs have climbed as much? If so, who would have been paying for the increase and with what funds?

I would like to see a report that reveals the staffing levels at universities over the last 30 years as compared to the numbers of students served.

I started my education at a small private LAC in 1987, and paid my own way thanks to a great job during high school, during the summers, and scholarships. My total cost out the door, for tuition and room and board was $7000 a year. Now, that was a fortune compared to the nearly free education I could have enjoyed as a California resident (I did transfer to a California university after two years and paid about $1000 a semester for tuition and fees (lived off campus.) At that small private school, the non-teaching school adminstration and support staff numbered less than twenty. We had on-campus activities, and our meal plan was just that traditional college dining hall, where you either ate the food or left hungry - no all access, no variety, not even a salad bar.

Today, that same private school serves about 37% more students, but its non-teaching staff has increased by 500%, and the out the door cost has increased by 350%. The number of faculty has only increased by 25%. They turned over their dining hall to Aramark several years ago. They have spent a lot of money on new buildings, more recruitment, and expanded athletic programs.

In addition to the availability of far more student financial aid than was available in 1987, students attending this private school in Florida have access to both Bright Futures money and FRAG subsidies (tax money given to students attending private schools located in Florida.) I am sure all of that available aid money has played a role in raising the costs to attend this school. It has helped this school finance many more employees, with all of the associated costs of having employees (salaries, benefits, retirement.) Hopefully, those in the classroom have enjoyed increased salaries, but it sure does appear that the money has flowed to places and people on campus who are not in the classroom doing the essential work of any college - to educate.

I am sure this LAC is not alone. Even our public universities here in Florida have become more expensive just as more financial aid became available.

I went to a small, private nothing-special LAC in the midwest in '84, and the sticker price was 12K. Sure that $7K didn’t include a scholarship or anything? I mean, generally, prices are lower in the midwest, not higher by more than 50%! But I guess we did have a salad bar in the one dining hall.

I don’t know that I agree more aid is available. We could borrow as much as we needed and all of it was subsidized. If anything, I’d think the limited loan availability we have today would serve more to keep prices down as students are no longer free to borrow like they used to. And even back in the 80s, there was PELL, SEOG, my state’s aid, federal loans (the direct), guaranteed loans from private lenders, and institutional aid.

You are correct aid has not increased by much, unless you count loans as aid. But there is zero doubt in my mind that this loan " aid" plays a huge part in the cost increases of colleges. If you couldn’t just sign here ( and here and here and here) and everyone had to come up with the cash, or the school with the corresponding grant, the vast majority of people would not do it. And when they didn’t, schools would cut things back to the price the customer will pay. Does anyone honestly think differently?
You can bet there will be a LOT of eBay sales on climbing walls when that happens. And it will, because it must

http://talk.collegeconfidential.com/parents-forum/1860338-rising-college-costs-2-studies.html

^ same study plus one more, includes direct links to the papers. Maybe merge threads.

At some schools, international students.

International students can help. But if a college cost $20,000 15 years ago. And today it costs $35,000. Middle family income levels have largely remained flat. So parents don’t have additional income to pay the additional $15,000. Savings rates did not increase that much (from what I have seen, about half of parents with kids under 18 years of age have $0 in college savings). So when the $35,000 bill shows up, where does a family get the funds without student aid of some sort? School may be able to charge international kids premiums and use a portion of those funds to help out domestic students. But the upward pressure on price is still the same as the domestic student is still paying $20,000 and the international kids tend to be willing to pay whatever premium required for a US college degree.

One way the factors interplay is the upward pressure on costs that is supported/caused by student aid allows colleges/universities to participate in the current arms race we see. Its all about big business now. Recruit kids with the whole “college experience” (which includes state of the art student unions, recreational facilities, dining facilities, etc.). Students/parents aren’t concerned to the extent costs of subsidized.

All the incentives push price higher at ever increasing rates. And a typical response to cries of college unaffordability is to increase the subsidies. Wash. Rinse. Repeat. And some call for “free” college for all. Just wait 'til to we see what happens to the price of college when its “free.”

When college is “free,” there will be a mountain of regulations added that will boggle the mind … and add to the cost of college. While those costs will not be apparent to the student getting a free education, they most certainly will be apparent to anyone earning money in the U.S., because the tax hit we take will increase tremendously. It costs a lot of money to run a school … and it will cost more if the government pays for all of it, because they will add regulations and oversight out the wazoo.

The government subsidizing is a factor, but another huge factor is the cost of benefits for employees, which have risen tremendously in the last 30 years. Any industry dependent on human capital is a costly one. Look at the explosion in medical costs. Someone has to pay those. Technology (we didn’t have a Help Desk or an Instructional Technology Department back in the dark ages, when we typed our papers on onion skin) and student services (both academic and psychological) drive up costs as well. Parents and prospective students often have higher expectations of physical environment (air-conditioned dorms, special dining arrangements for various food needs and so on) than people used to have. Government, state, and accrediting body regulations require colleges to hire a lot of administrators to make sure the institution is in compliance. All of these factors play a role.

It’s a plain fact that student aid causes high tuition. The schools openly acknowledge they have moved to a “high tuition/ high aid” model.

http://www.theatlantic.com/business/archive/2013/07/how-not-to-help-the-poor-the-lesson-of-soaring-college-prices/277658/

I agree @GMTplus7 - the model is essentially wealth redistribution, with the universities and colleges playing Robin Hood. The quote from The Atlantic is incorrect in this respect, however: according to the Merry Men even at “full pay” of $60k+ I am not paying the FULL cost of my kid’s education (only 70%!) Her school has called our house 3 times in the last 4 days trying to get us to donate a suggested $250. When I saw the caller ID I feared she was in the infirmary. Instead I’m the one who got queasy.

@GMTplus7 you are talking about aid on the student receiving side. The article in the OP is about aid on the supply side. Two different things though related.

But that’s their own aid, not government aid, which is what the OP study looked at.

(theatlantic article posted by @GMTplus7

??? I thought it just used the “high tuition” model.

LOL, I see the article says exactly that further down:

Seems to me this is the main cause in this case:

Further,

Indeed. It’s not an example of a “high aid” model at all.

Robin Hood would be rolling in his grave at that 40% skim.

Agree whole-heartedly with @NJSue.

@ordinarylives Yep, just $7000 a year in 1987-89. I wrote the checks, and lived off of $5 cash per week, so the amounts are ingrained in my mind. My family household income was lower middle class but the federal government student financial aid program was undergoing a lot of changes in the late 80s and I did not get a lot of federal aid money. My now-sister-in-law went to school at a California university in the early 80s (1982-85), and, though the tuition was only about $200 a semester, the school was throwing Pell grants and all sorts of other free money at her, even though she did not really need it - so she banked it, as the aspiring CPA she was. The taxpayers built her savings account. My school was/is located in the southeast, where things are still, in general, less expensive across the board. I guess it is all perspective, as I never think of the Midwest as inexpensive, especially when it comes to higher education and state income taxes.

It is the same old story, though, about federal financial aid and tuition rates. Found two interesting articles from the early 80s - one in which Harvard administrators were throwing fits about Reagan’s plan to try to reduce the student financial aid program and another in which parents lament about the cost of sending their kids to college (I am providing the link to that one below.) And FYI: Amherst, in 1982, cost $11K. Today: $62,940. The relative purchasing power value of $11K in 1982 dollars calculated in today’s dollars is $27K (at measuringworth.com) And yet, Amherst now costs nearly $63K a year.

http://www.nytimes.com/1982/03/15/nyregion/cuts-in-college-aid-placing-students-in-a-vise.html?pagewanted=all

Only for 32% of students, though. 68% pay less. Average amount of aid there is $48K.

http://nces.ed.gov/collegenavigator/?q=amherst&s=all&id=164465#finaid