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Is Financial Aid Really Making College More Expensive?
The Atlantic ^ | 02/17/2012 | Thomas Barrat

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 ...


TOPICS: Culture/Society; Government; News/Current Events
KEYWORDS: college; educationfunding; financialaid; tuition

1 posted on 02/17/2012 6:19:11 AM PST by SeekAndFind
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To: SeekAndFind
Is Financial Aid Really Making College More Expensive?

Well, duh?

Basic economics. More money chasing goods and services...prices rise!

2 posted on 02/17/2012 6:22:27 AM PST by RoosterRedux (Go Newt!)
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To: RoosterRedux

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.


3 posted on 02/17/2012 6:27:00 AM PST by wiggen (The teacher card. When the racism card just won't work.)
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To: SeekAndFind

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.


4 posted on 02/17/2012 6:27:12 AM PST by camle (keep an open mind and someone will fill it full of something for you)
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To: wiggen
Absolutely!

And corporate insurance makes it really expensive for self-employed folks.

5 posted on 02/17/2012 6:30:28 AM PST by RoosterRedux (Go Newt!)
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To: SeekAndFind

Did subsidized mortgages and loose underwriting standards make houses expensive?

Gee, these are tough questions ....


6 posted on 02/17/2012 6:33:52 AM PST by Skepolitic
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To: SeekAndFind


7 posted on 02/17/2012 6:39:20 AM PST by Theoria (Rush Limbaugh: Ron Paul sounds like an Islamic terrorist)
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To: SeekAndFind
All these people would hqve to do to answer this question is to think back to their days in the US Army.

Every time the housing allowance increased, rents went up.

8 posted on 02/17/2012 6:44:04 AM PST by HIDEK6
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To: HIDEK6

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.


9 posted on 02/17/2012 6:51:25 AM PST by SeekAndFind
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To: Theoria

10 posted on 02/17/2012 6:55:19 AM PST by SeekAndFind
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To: wiggen
That being said when it comes to insurance i’m not sure theres an answer. Nobody should go bankrupt over their childs illness.

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.

.

11 posted on 02/17/2012 6:58:41 AM PST by Graybeard58 (Eccl 10 v. 19 A feast is made for laughter, and wine maketh merry: but money answereth all things.)
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To: SeekAndFind

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.


12 posted on 02/17/2012 7:02:25 AM PST by dmet
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To: SeekAndFind

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.


13 posted on 02/17/2012 7:20:13 AM PST by denydenydeny (The more a system is all about equality in theory the more it's an aristocracy in practice.)
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To: SeekAndFind
Of course government intervention into the market for college level education distorts pricing upward. First off, the entire process becomes a cartel's dream for colleges since every parent must file a federal form (FAFSA) and disclose how much money they have and what they can afford to pay.

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!

14 posted on 02/17/2012 7:24:17 AM PST by freeandfreezing
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To: SeekAndFind

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.


15 posted on 02/17/2012 7:25:08 AM PST by woodbutcher1963
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To: Graybeard58; wiggen

>> when it comes to insurance i’m 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.

So:

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.


16 posted on 02/17/2012 7:33:31 AM PST by Hawthorn
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To: SeekAndFind
What's making public colleges more expensive, at least in Michigan, is the reduction in state funding to public colleges over the years. The rate of state funding has decreased drastically over the years, causing tuition rates to skyrocket.

State of Michigan funding levels

17 posted on 02/17/2012 7:36:12 AM PST by Yo-Yo (Is the /sarc tag really necessary?)
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To: Hawthorn

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.


18 posted on 02/17/2012 7:51:21 AM PST by St_Thomas_Aquinas (Viva Christo Rey!)
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To: Hawthorn

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.


19 posted on 02/17/2012 7:52:16 AM PST by wiggen (The teacher card. When the racism card just won't work.)
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To: wiggen

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.


20 posted on 02/17/2012 8:02:12 AM PST by Oldexpat
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To: SeekAndFind
There are several colleges that DO NOT take Federal Government money for their students.

Besides Hillsdale and Grove City, please add the lay-run Catholic college Christendom College in Front Royal, VA. Tuition and fees comaprable to Hillsdale and Grove City.
21 posted on 02/17/2012 8:02:42 AM PST by Dr. Sivana (May Mitt Romney be the Paul Tsongas of 2012.)
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To: wiggen
That being said when it comes to insurance i’m not sure theres an answer. Nobody should go bankrupt over their childs illness.

If health "insurance" was like auto insurance (with a deductible and maintenance items not covered) it would be quite affordable.

22 posted on 02/17/2012 8:12:08 AM PST by CharacterCounts (November 4, 2008 - the day America drank the Kool-Aid)
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To: RoosterRedux

Anytime you create an artificial floor, you completely remove any downward pressure on price. If the seller of an item knows everyone that walks in their door is guaranteed to have X dollars available to them to spend at a minimum and that those dollars are guaranteed to be financed and not to be paid back for years (no payments nada) there is ZERO downward pressure to not charge at LEAST that much.

Look at Sec 8 as a perfect example, in a town where section 8 agrees to pay $500 for a 1 bedroom apartment, just try and find an apartment for less than $500 even if you aren’t on section 8...

To argue this hypothesis isn’t proven is nonsense.

The year I was born the median household income was ~25,000 dollars. a year of HARVARD was 2,500. Today the average median household income is about 45k and a year of harvard is 37,000 dollars.

The school I graduated from in 1994 cost about 5,000 a year, this year its over 15,000 per year. The degree I paid 20k for and got a 40k a year job with, now would cost 60,000 and get you a 50k a year job with.

Its the same school, the education isn’t any better...

Hasn’t been proven is nonsense. Basic economics proves it time and again, create an artificial floor and you have no downward pressure on price, and prices go up.


23 posted on 02/17/2012 8:16:06 AM PST by HamiltonJay
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To: wiggen
Theres nothing easy about this.

Simple solutions usually come from simple people and are notorious for not working. That never stops them from telling you how dumb you are for not seeing their "simple solutions"

In case the above statement doesn't make sense, I'm agreeing with you.

24 posted on 02/17/2012 8:17:08 AM PST by Graybeard58 (Eccl 10 v. 19 A feast is made for laughter, and wine maketh merry: but money answereth all things.)
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To: St_Thomas_Aquinas

>> Since were not likely to enjoy a purely free market anytime soon, what is a realistic, incremental, more market-based approach? <<

You raise perfectly valid point. Thanks!

Milton Friedman, John Goodman, and others have written tens of thousands of excellent words on this matter. I can’t cover everything. But for starters, here are some points off the top of my head:

1. Privately purchased health insurance should get exactly the same tax treatment as insurance that might be purchased for you by an employer. The tax system should be neutral as between the two types of coverage. Health savings accounts can be a useful “transitional” tool in achieving this goal.

2. Cash outlays for health and medical expenses should get exactly the same tax treatment as expenses for insurance. Health savings accounts and high-deductible “catastrophic” coverage policies would have a big role here.

3. There should be no restriction on sales of health insurance in interstate commerce. Or even across international borders. If I want to buy my coverage from an Alaska company, even though I might live in Puerto Rico, let me do so!

4. There should be no government mandates on what health insurance must cover. If you want a high-deductible policy that doesn’t cover dental cleaning, botox, Viagra and abortion, then go for it!

5. Government expenditures on health matters should largely be restricted to basic research (lots of it, IMO) and to the provision of accurate information. VA hospitals should be given to state governments, with transitional block grants to cover operations for ten or fifteen years, or they should be sold to the private sector, with special “health vouchers” made directly to vets if necessary.

6. To the extent that the voting and tax-paying members of society want there to be a “safety net” for the very poor, federal efforts should be directed mainly to (a) tax incentives for private charity and (b) block grants to the states.

7. Although there certainly should be no federal “mandate” for everybody to purchase health insurance, everybody above a certain income level should be required every year on his or her federal tax return to swear/affirm that if they choose NOT to have a certain level of health insurance coverage, then they (a) will not ask for, they (b) will not accept, and that they (c)fully understand they will not get any kind of federally-subsidized assistance if they suffer illness or injury.


25 posted on 02/17/2012 9:01:13 AM PST by Hawthorn
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To: CharacterCounts

Theres an absolute limit on what the insurer is going to lay out if you total your car. Health issues could go on for years and years. I don’t think auto is all that comparable.


26 posted on 02/17/2012 9:08:14 AM PST by wiggen (The teacher card. When the racism card just won't work.)
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To: Hawthorn

I like these ideas, but they don’t really address the elderly and chronic diseases. I’m sure that Medicare and Medicaid aren’t the best we can do.


27 posted on 02/17/2012 9:12:39 AM PST by St_Thomas_Aquinas (Viva Christo Rey!)
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To: wiggen

>> so you’re pro insurance. <<

Wrong. If anything, I could be called “anti” insurance, since I think the current income tax regime gives incentives for there to be TOO MUCH insurance, at least when we’re talking about employees of (a) big companies and (b) other big organizations like governments (federal, state and local).

But really, what I want is a NEUTRAL system — one that allows intelligent consumers like you to buy whatever insurance suits you best. I’m confident that you and millions of other Americans will know better than some bureaucrat, and maybe even better than your company’s HR department, what kind and what amount of coverage is best for you.

So here’s option no. 1:

If your company can negotiate a group policy that you think is better for your needs than what you can find on your own, then that would be great. Go for it!

On the other hand, for option no. 2:

If you think you can take the money your employer would spend on your policy, plus your own contribution, and then use that same sum to buy a policy that better suits your family’s needs, then that also would be great. And if you could buy coverage for a little less than what would be spent via a company policy, then you should be allowed to keep the savings as a form of increased cash compensation.

The main problem now, however, is that option no. 2 is effectively foreclosed by the federal income tax system. Get rid of the tax favoritism for employer-provided insurance, and you go a long way toward a solution.


28 posted on 02/17/2012 9:20:14 AM PST by Hawthorn
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To: Oldexpat

I did mention something to the effect of expanding demand and without insurance doctors and hospitals would be forced to charge less. I think we on Freep are all cognizant of how that works. The real issue with insurance is covering really major issues,the kind that would bankrupt a person.
Maybe that’s all insurance should cover. Categorize illnesses and have it cover those that will result in hospital stays. Stuff like that. I think it also must cover yearly check ups just to keep the cost of the bigger stuff down.
Infected fingernail? Pay as you go. A cold? Lots of stuff pay as you go. I think that would help lower costs on the lesser issues.
And one more thing. Government can’t sure stupid. Infect a fingernail and decide you don’t need to take care of it until its poisoning you then you’re not covered for all the extra! That is likely where the real left right war would be.


29 posted on 02/17/2012 9:23:32 AM PST by wiggen (The teacher card. When the racism card just won't work.)
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To: Hawthorn

My “high-deductible” policy keeps getting more expensive, I’m sure partly because of the mandated coverages that bypass the deductible.

I want a policy where I decide how much I pay out-of-pocket per year (say, $5000) for EVERYTHING. (including checkups, mammograms, colonoscopy, etc) I bet my rates would go down.


30 posted on 02/17/2012 9:24:02 AM PST by jaybee
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To: freeandfreezing
>> imagine that before you could get your car fixed you had to give your tax returns and checking account balances to the mechanic <<

A terrific analysis and a beautiful example. I have no idea how much is original to you, but congratulations! And your discussion certainly deserves much wider dissemination.

31 posted on 02/17/2012 9:27:28 AM PST by Hawthorn
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To: Hawthorn

i cannot see any way that i will be able to or you for that matter negotiate down an insurer and get equal value. The companies have little to no incentive to give too much. Whatever you think you’re getting from them will have been a chip they were always wiling to lose.
Size matters! Much easier actuarial calculations for an insurer.


32 posted on 02/17/2012 9:41:35 AM PST by wiggen (The teacher card. When the racism card just won't work.)
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To: wiggen
The two are absolutely comparable. You may not realize it, but many of the current plans have absolute lifetime limits.

Also, one of the main contributing factors on the cost of health care premiums is the layout for routine office visits, tests and prescription drugs.

If the health insurance merely imposed a $1,000 per year deductible before the insurance carrier paid a dime, costs would plummet.

33 posted on 02/17/2012 9:44:35 AM PST by CharacterCounts (November 4, 2008 - the day America drank the Kool-Aid)
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To: CharacterCounts

I believe many dental plans have a deductible. Those plans don’t cover a whole bunch regardless.
Maybe i’m jaded but i don’t think insurance companies will be looking to actually provide value. They will look to offer a percentage back of what they take in. More profits. Period. Its just where we are now.


34 posted on 02/17/2012 11:30:50 AM PST by wiggen (The teacher card. When the racism card just won't work.)
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To: wiggen

THE PUBLIC DEMANDS THE VALUE. A profit making company aggressively seeks to PROVE THAT DESIRED VALUE.

But a bureaucracy hobbles all efforts to provide real value, and diminishes all desires. The bureaucracy IGNORES what the public considers valuable, and at first replaces those values to be sought with the values the elite of the time would seek. But in the long term, even those values are abandoned. What “values” does a established bureaucracy seek? Those that are the MOST disrespectful of reality.


35 posted on 02/17/2012 12:43:58 PM PST by bvw
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To: wiggen; bvw; CharacterCounts

>> i cannot see any way that i will be able to or you for that matter negotiate down an insurer and get equal value <<

Fine. You stick with your company’s policy. Won’t bother me a bit, and apparently you will be happy.

But please grant me the same consideration. Just let me and other self-employed or small-business folks pick our own coverages and our own deductibles, let us shop across state lines, and give us equal tax treatment to what your employer gets. Then let employees of government and big business also have these market-oriented options. The market can work wonders if only the government will get out of the way and let capitalism do its thing!


36 posted on 02/17/2012 2:42:51 PM PST by Hawthorn
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