Skip to comments.Is Financial Aid Really Making College More Expensive?
Posted on 02/17/2012 6:19:02 AM PST by SeekAndFind
Financial aid, whether it's a cheap loan, a work-study job at the campus library, or a grant, is supposed to make college more affordable and accessible for students. But what if, by handing money out to undergrads, the government is simply encouraging schools to spend more and jack up tuition?
Meet "the Bennett hypothesis," the dismal notion named for Reagan Education Secretary William Bennett, who suggested it in a 1987 New York Times op-ed diplomatically titled "Our Greedy Colleges." Generous student-aid policies had "enabled colleges and universities blithely to raise their tuitions, confident that Federal loan subsidies would help cushion the increase," he wrote at the time. "Federal student aid policies do not cause college price inflation, but there is little doubt that they help make it possible."
Twenty five years of swelling tuition prices later, Bennett's critique seems to have received a stamp of bipartisan approval, courtesy of the Obama administration. It's the driving spirit behind a White House proposal that would condition a small amount of the federal financial aid that colleges distribute to students on their ability to keep a lid on costs. "We can't just keep on subsidizing skyrocketing tuition," Obama told a rally audience at the University of Michigan last month as he announced the idea.
True enough. Subsidizing skyrocketing tuition sounds like a supremely poor idea. If only it were clear what the link between student aid and college costs actually was.
PUTTING BENNETT TO THE TEST
Researchers have been examining the Bennett hypothesis for decades, trying to figure out whether it holds water. So far, we don't know the answer. Nobody has proved, once and for all, that it's right. But they've found pretty good signs that it might be.
(Excerpt) Read more at theatlantic.com ...
Basic economics. More money chasing goods and services...prices rise!
Insurance makes healthcare more expensive as well. If there were no deep pockets to dig into then doctors and hospitals could not charge what they charge. Whats the use of high prices if nobody can afford them?
These are the same issues. Anything that expands a payer pool will expand demand which in turn will expand costs.
That being said when it comes to insurance i’m not sure theres an answer. Nobody should go bankrupt over their childs illness.
in any economic system, costs will rise to absorb the money tossed into it. this has shown itself true for health care, and now education. the only way to rein in prices, is to restrict the available cash inflow.
And corporate insurance makes it really expensive for self-employed folks.
Did subsidized mortgages and loose underwriting standards make houses expensive?
Gee, these are tough questions ....
Every time the housing allowance increased, rents went up.
There are several colleges that DO NOT take Federal Government money for their students.
Hillsdale College and Grove City College comes to mind. They have generous endownment and contributions from friends and alumni.
Neeldess to say, their tuition plus board are relatively affordable compared to most private colleges and universities.
At Grove City College for instance, tuition plus baord and lodging is only $22,000 a year ( TOTAL ). And you can get aid if you qualify too.
Plus, you don’t get indoctrinated with Marxist education or fluff courses.
I'm not sure there's an answer either. While I agree that no one should go bankrupt because of sickness in the family, I believe also that no one else should be forced to pay for it.
Even if all the religious bodies in the U.S. banded together and said let's collectively cover everybody, the non religious would simply ride free and the churches with all their resources couldn't cover it.
I do know that government interference only makes it worse as it does with anything it interferes with.
I keep good records for tax purposes and in 2009 I spent $16,550 out of pocket on medical expenses, in 2010 it was $14,000 in 2011 it was about $12,000. (Those numbers include premiums) I'm not rich and do have insurance, those dollar amounts didn't bankrupt me but they did hurt like hell.
Money spent on medical expenses are limited as deductions to the amount above 7.5% of your income, a big help would be to remove that 7.5% figure but the last I heard was that democrats in congress want to increase it to 10%. It may have already happened, I don't know as I haven't filed my taxes yet.
This is happening on the farm too. The Government “helps” farmers in purchases of overpriced herbicides. The law of supply & demand is destroyed and the price will never come down.
In other news, water is wet.
I love the examining-creatures-from-amother-dimension tone of this piece, which is typical of liberals when they have to admit that conservatives are right and the laws of supply and demand actually work.
That requirement alone immediately disadvantages the buyers in the market - the seller knows what you can pay so he can adjust his price accordingly - that's why all colleges have a high list price and provide "aid" often from their own accounts to adjust the price to fit what the customer can afford. No other market has a similar pricing strategy, nor would it be legal to do so.
Just imagine that before you could get your car fixed you had to give your tax returns and checking account balances to the mechanic so he could see how much "aid" he should give you on the bill for fixing your transmission.
Lots of colleges have an effective discount rate of 40 or 50%, so their real selling price is about half of the list price. But unlike a true market, where anybody can negotiate for a better price, the sellers have all the cards in the college market, courtesy of the government.
In the absence of government intervention the colleges would have to compete for students fairly, offering prices that would meet the buying preferences of the parents and competing with their fellow colleges. In that situation college prices would rapidly fall, just like prices in other competitive markets. Of course all those liberal professors would hate it since they'd now be subject to competitive pressures to innovate, be more productive, and work for less money!
It makes everything more expensive including the real estate in the towns surrounding the universities.
WMUR Manchester(NH) recently published a list of the 25 most expensive towns in NH.
Hanover, NH home of Dartmouth College and Lyme,NH the town next door both were in the top ten. Also, several towns surrounding Durham, NH the home of UNH were on the list.
>> when it comes to insurance im not sure theres an answer <<
You make an astounding admission. Either you gotta be kidding, or you simply haven’t studied the matter:
OF COURSE there’s an answer, or at least several of them. Milton Friedman developed the basic and the correct understanding of the health insurance conundrum years ago, and little or nothing has changed “analytically” since then.
The heart of the problem is that ever since WW2, most people have obtained their medical insurance via their employers. This perverse system has meant that the majority of Americans tend to view healthcare almost as a “free good” and therefore they have little or no incentive to economize the use of healthcare resources. The end result has been a bundle of economic distortions, the net effect of which has been the hyperinflationary trend of health-sector costs.
Let us move back to a market-based system, where (a) the U.S. income tax regime encourages individuals to buy their own insurance; where (b) we’re free to buy any kind of policy across state lines, without government-mandated coverage provisions; and where (c) the doctor-patient relationship isn’t encumbered by “middleman interference” from insurance companies and from governmental agents — then bingo, you’re well on the way to a solution.
State of Michigan funding levels
The hard problem with health insurance is the elderly and those with chronic illnesses.
In a free market, I believe that charity would fill this void.
Since were not likely to enjoy a purely free market anytime soon, what is a realistic, incremental, more market-based approach?
One step could be tax-funded awards being offered for better, cheaper cures, or healthcare improvements, however defined.
Wait so you’re pro insurance. I don’t want to make any mistakes here. And you wish a system of everyone buying their own?
So the thousand plus i pay a month towards health insurance dental being a different expense,would go up by how much? As a participant in a group policy i get a price break. If insurance companies had nothing but individual policies they would not hesitate to raise rates even more to cover all those pesky persons.
Obtaining insurance through your employer is not the problem. The problem is all the people that never put anything in or very little. They had the most reason to abuse the ‘gift’.
I wish i could say that if companies didn’t cover their employees that they would pay more but looking at how stagnant pay has been for at least a decade i bet they wouldn’t.
Theres nothing easy about this.
It is just like the housing bubble. There is a limited supply of prestige and semi prestige school spaces and a growing demand. The Govt steps in the make more money available..demand continues to grow and the price goes up beyond its real value. If the Govt stopped guaranteeing and making student loans..the schools would be short about 50% of the demand and would have to reduce prices and costs. The Govt has allowed them to raise tuition, salaries and other services beyond their value. Plus they have hung on to an underutilized physical brick and mortar plant way too long.
They need to modernize..and utilize. We the taxpayer are on the hook for all these loans.