Tuesday, August 16

New Study Finds that Increased Financial Aid Availability May Actually Hurt Students

It’s been an area of concern for quite a few years now, but there doesn’t seem to be an end in sight when it comes to rising college costs. A new study by the Federal Reserve Bank of New York shows that colleges are raising their prices — in order to make money available for financial aid.

Senators such as Lamar Alexander say that students can afford college; however, the reality is vastly different. The average cost, according to College Board, for public schools is $9,139 and that number jumps to $31,231 for private schools. That number only includes tuition and fees, as well — not books, board, meals, or other necessities. With the average American household income at less than $52,000, lower-income families cannot even begin to think about college, because it just isn’t a viable option.

Financial aid is necessary for the vast majority of students. The government is involved because the nation needs educated people to move into jobs later on and provide the U.S. with stability. It is for this reason that Congress has been considering an increase for financial aid programs, so that families are able to at least keep up with these rising costs.

But a new study finds that that may not be the case, because it may do the opposite of help. It could instead set of something like a “tuition arms race.” We’ve started seeing the effects of this already. Researchers David O. Lucca, Karen Shen and Taylor Nadauld say that “institutions more exposed to changes in the subsidized federal loan program increased their tuition disproportionately around these policy changes, with a sizable pass-through effect on tuition of about 65 percent.”

The study analyzed student-level financial data including college costs, financial aid programs and the timing of the changes. They specifically studied 2008 and 2009, because that was when the biggest increases in financial aid caps occurred. Researchers found that even after considering the variables, there was a direct connection of college expenses increasing as financial aid became more available. The biggest impact was from federal subsidized loans.

These impacts could be detrimental to lower-income families — and federal policies. These effects were predicted in 1987 by William Beckett, the Secretary of Education at the time. He wrote for the New York Times, saying federal aid made it too easy for schools to “blithely to raise their tuitions, confident that Federal loan subsidies would help cushion the increase.” The idea became known as the “Beckett Hypothesis.”

This study is the first to show a direct correlation since Beckett’s prediction. The question to think about now is how the issue can be fixed. Lowering available aid may not lower costs, and increasing it hasn’t helped, either. While the schools may use the extra money they’re soaking up for expansion or recruitment, it is a nightmare for middle- to low-income families.

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