Does Federal Aid Hike College Tuition?
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| Title: | Does Federal Aid Hike College Tuition? |
|---|---|
| Language: | English |
| Authors: | Adam, Michelle |
| Source: | Education Digest: Essential Readings Condensed for Quick Review. Dec 2005 71(4):42-46. |
| Availability: | Prakken Publications, 832 Phoenix Dr., P.O. Box 8623, Ann Arbor, MI 48108. Tel: 734-975-2800; Fax: 734-975-2787; Web site: http://www.eddigest.com/. |
| Peer Reviewed: | N |
| Page Count: | 5 |
| Publication Date: | 2005 |
| Document Type: | Journal Articles Opinion Papers |
| Education Level: | Higher Education |
| Descriptors: | Tuition, Federal Aid, Higher Education, Student Financial Aid, State Aid, Human Capital, Educational Finance |
| ISSN: | 0013-127X |
| Abstract: | Imagine a different kind of financial aid for those who can not afford the skyrocketing prices of today's college education. It involves selling shares of oneself--selling shares that would provide a return on one's potential earnings to those willing to invest in one's education. In this article, the author comments on Gary Wolfram's selling shares as the human capital contract that allows students to go to a venture capital market and obtain investors in their education. He favors such financial aid, challenging the effectiveness and efficiency of supporting higher education through the current federal aid system. Moreover, he pointed out that while some schools may choose to maintain tuition levels, they may instead lower university or state financial assistance in the face of increased federal grant aid. Furthermore, he discusses the pros and cons of eliminating federal aid and replacing it with a more private market-based approach. |
| Abstractor: | ERIC |
| Entry Date: | 2006 |
| Access URL: | https://www.eddigest.com/index.php |
| Accession Number: | EJ741206 |
| Database: | ERIC |
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| FullText | Links: – Type: pdflink Url: https://content.ebscohost.com/cds/retrieve?content=AQICAHj0k_4E0hTGH8RJwT4gCJyBsGNe_WN95AvKlDbXJGqwxwFBMb80W-w2R3XHFqImbwGIAAAA4jCB3wYJKoZIhvcNAQcGoIHRMIHOAgEAMIHIBgkqhkiG9w0BBwEwHgYJYIZIAWUDBAEuMBEEDMOEs71hwdeEt6dMJAIBEICBmi7tw8dRf6WKfcWyxhr-0v5UqNYKlBy3z-BIg3XtjfelcSBZuWdbQ1Ge9zPf4ud_KJkQU6fXXn1NDPc2mZAVdOyh-prjE-zKXTX1pOOQoekIKfBAay6RRQoon6Oshi_FkaJYfRBtNSvKZ_62BLwZ8ah8HYeAxViZtE1otVWkz--_kV116KM6CAwnUioFMjYG7EGnAP-LS4b-lgs= Text: Availability: 1 Value: <anid>AN0019097980;edd01dec.05;2005Dec13.14:25;v2.2.460</anid> <title id="AN0019097980-1">Does Federal Aid Hike College Tuition? </title> <p>IMAGINE a different kind of financial aid for those who can't afford the skyrocketing prices of today's college education. It has you selling shares of yourself — selling shares that would provide a return on your potential earnings to those willing to invest in your education.</p> <p>Gary Wolfram, George Munson Professor of Political Economics at Michigan's Hillsdale College, calls this the human capital contract, first suggested 40 years ago by Nobel Prize laureate Milton Friedman to allow students to go to a venture capital market and obtain investors in their education.</p> <p>In Wolfram's January 2005 CATO Institute study, Making College More Expensive: The Unintended Consequences of Federal Tuition Aid, he favors such financial aid, challenging the effectiveness and efficiency of supporting higher education through the current federal aid system.</p> <p>"In access to higher education, you need to find a way for the system to create incentives for the best use of resources," said Wolfram. "Human capital contracts may not be able to do all we want them to. But they will make it possible to support those who will produce consumer goods that are needed in society."</p> <p>Such contracts are currently offered by few firms, as federal loans and grants have become a choice option for students unable to afford college. Wolfram argues, however, that federal aid has inspired a rise in college tuition in past decades, creating a cycle of escalating costs for all students.</p> <p>Quoting his study, "One result of the federal government's student financial aid programs is higher tuition costs at our nation's colleges and universities. Basic economic theory suggests that the increased demand for higher education generated by HEA [the Higher Education Act] will have the effect of increasing tuitions. The empirical evidence is consistent with that — federal loans, Pell grants, and other assistance programs result in higher tuition for students at our nation's colleges and universities."</p> <hd id="AN0019097980-2">Hard to Measure the Exact Impact</hd> <p>Wolfram concedes, however, that it is hard to measure the exact impact of federal aid on tuition, since institutions are all different, and other factors, like cost of facilities, maintenance, research, and health care, have all added to the increasing price of tuition.</p> <p>Although Wolfram spent much of his career as a professor, he has also worked in public and political arenas, as economist for Michigan's Republican Senate, deputy state treasurer of Michigan, and then chief of staff for Congressman Nick Smith. He has also been a consultant to businesses like General Motors.</p> <p>His interest is to see how economic theory can be used to analyze optimal public policy and to determine how a political institution works well. Looking at federal aid for higher education for the CATO Institute, he saw the need to look beyond public policy to determine whether it actually achieves its aims.</p> <p>"If people saw how the political system worked — I consult and make bills become law and block bills from becoming law — then they may be less interested in having the political system take over," he said. "My piece says that we should look at what we are doing. Congress makes decisions ignoring the fact that Pell Grants cause tuition to rise."</p> <p>"No one wants to point it out," he added. "It's obvious if you give people lots and lots of money, it would be odd for it not to bid up the price. Imagine if the government gave money for people to buy compact disks. If you then went into the stores, you'd find the prices would have gone up."</p> <p>"To understand the effect of the federal student aid program," he wrote, "imagine a demand curve that represents how many students will purchase four years of college, and a supply curve that represents how many spots will be available at four-year colleges. As with any good, the demand curve slopes down, indicating that as tuition declines, more people will purchase the good, and the supply curve slopes up, indicating that, as tuition rises, more higher education services will be supplied…. If the number of available spots in higher education institutions rises very little as tuitions rise, then the increase in demand caused by federal aid will primarily result in higher tuition costs for students."</p> <hd id="AN0019097980-3">A Close Look at the Correlation</hd> <p>Beyond theory, however, Wolfram cited research in his study that, despite difficulties determining direct impacts of aid on tuition, looked closely at the correlation between government aid and tuition increases at institutions of higher education.</p> <p>According to Wolfram, in a 1999 study by Judith Lion Pell Grants, she found that "private four-year colleges increased listed tuition prices by more than two dollars for each dollar increase in Pell Grants, and public four-year colleges increased their listed tuition by 97 cents for every dollar increase. She found that public four-year institutions were able to increase net tuition by 68 cents for every dollar of Pell Grant increase, while private four-year institutions raised their net tuition by 60 cents. That means that both public and private colleges and universities actually raised tuition by more than the amount of the Pell Grant." But he also added, "Li did estimate that public two-year institutions decreased tuition, 17 cents for net tuition and 18 cents for list tuition, for every dollar increase in Pell revenue."</p> <p>Wolfram says University of California-Los Angeles' Rebecca Acosta found in her 2001 study How Do Colleges Respond to Changes in Federal Student Aid? that "for every dollar in additional federal grant aid, private four-year institutions increased tuition revenues by $3.24. They did offset some of the increase in tuition by increasing their in-house financial assistance by $ 1.48. The net effect was an increase in net tuition of $1.76 for every dollar increase in federal grant aid."</p> <p>In other works cited by Wolfram, research found top-ranked private universities increased net tuition (list tuition minus institutional aid) by $3.96 for each dollar in Pell Grant, but did not find this at public universities or lower-ranked private universities. Bridget Long's The Impact of Federal Tax Credits for Higher Education Expenses concluded that many states cut funding to two-year public colleges with low tuition levels, and these same colleges raised tuition in response to tax credits.</p> <p>Although the number of students receiving grants, loans, and work-study was expected to reach 10 million, up from 9.5 million in 2004, Wolfram argues that the federal government should stay out of education completely, a view aligned with CATO Institute, which supports allowing the capital market to provide the resources and support for students.</p> <p>"Search as one might through the Constitution," wrote Wolfram, "one will not find the power to provide for higher education granted to the federal government. Because of that, [it] should not be providing financial assistance to induce people to obtain higher education."</p> <p>Congress has been reauthorizing the Higher Education Act (HEA), which began with such programs as the Gl Bill, and today accounts for $73.1 billion in overall federal financial aid to students in Bush's 2005 budget, up $4.4 billion over 2004. Says Wolfram's report, "The Department of Education also projects tax benefits from the higher education tax programs to be $3.5 billion under the Hope Tax Credit, $2.2 billion under the Lifetime Learning Tax Credit, $2.6 billion for higher education deductions, and $780 million in deductions for interest paid on postsecondary loans in Fiscal Year 2005."</p> <hd id="AN0019097980-4">Based on His Own Experience</hd> <p>Wolfram argues that "Congress should phase out the current federal assistance program over a period of 12 years and allow the charitable sector to provide assistance to college students." His justification for this comes from his own experience in academia.</p> <p>As chairman of the board of trustees of Lake Superior State University (LSSU), a small public university in Sault Ste. Marie, Michigan, Wolfram provided further argument against federal aid. He explained that the school attracts students from the Upper Peninsula of Michigan, where the per capita personal income is substantially below the statewide average.</p> <p>Therefore, the board has always tried to keep tuition affordable while tending to the fiscal responsibilities of the school. Yet, in facing state budget problems, the board decided, more times than not, to increase tuition. "We certainly raise tuition if we know the federal government has raised its Pell grants. We'd rather do that than fight with faculty on salary," said Wolfram.</p> <p>From an economic standpoint, a school would not raise its tuition if it felt that it would lose its constituents. But, in the case of schools like Lake Superior, the board is less concerned with the effects of tuition increases, since federal aid helps alleviate its effects, he added.</p> <p>As he described in his study, "The board, while not explicitly discussing it, presumed that demand for an LSSU education was inelastic [that students would stilt attend the university despite changes in price], since they voted to increase tuition in order to raise revenue.… The fact that these students are receiving federal assistance assuaged the board's feelings about increasing tuition. Had federal assistance been declining, it is more likely that we would have reduced expenditures by eliminating programs and would either not have increased tuition or increased it to a lesser amount.…</p> <p>"What the federal student assistance seems to do is make it easier to get a majority on the board to raise tuition than would otherwise be the case. Board members feel that the tuition increases do not harm low-income students substantially, since for some their Pell Grant will increase, and for the rest, their student loans will go up with tuition increases."</p> <p>Wolfram pointed out that while some schools may choose to maintain tuition levels, they may instead lower university or state financial assistance in the face of increased federal grant aid.</p> <hd id="AN0019097980-5">Who Ultimately Benefits from It?</hd> <p>Asked who ultimately benefits from higher tuitions, Wolfram concluded: "We know that about 80% of the profit at colleges goes toward wages and salaries. Schools end up capturing the grants. But at Lake Superior, the state is getting the money by reducing appropriations. The Pell Grant could be allowing state governments to reduce their appropriations."</p> <p>While schools and states may benefit from increased aid, Wolfram sees the federal aid process as merely feeding a cycle without making the best uses of educational resources. As he explained, aid for lower-income students pushes prices up, and in turn, middle and upper classes complain, and receive tax credits, which in turn, pushes the price up further.</p> <p>"It seems inefficient," said Wolfram, returning to human capital contracts, and how they would be an ideal solution for many lower-income students such as Hispanics.</p> <p>"For poorer Hispanics, the burden and risk of a loan can be too high," he said. "Now imagine a company that provided 10,000 human capital contracts and made them into shares. Then it would be possible. The risk would be spread out."</p> <p>As Wolfram argues in favor of eliminating federal aid and replacing it with a more private market-based approach to aid, others are fighting for an increase in federal aid. The results have been hammered out during these past years — and as of yet, there's no sign that federal aid is going away any time soon.</p> <aug> <p>By Michelle Adam</p> <p></p> <p>Michelle Adam is a Contributing Editor for The Hispanic Outlook in Higher Education. Condensed from The Hispanic Outlook in Higher Education, 16 (October 10, 2005), 29-30. Published at 210 Route 4 East, Suite 310, Paramus, NJ 07652.</p> </aug> |
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| RecordInfo | BibRecord: BibEntity: Languages: – Text: English PhysicalDescription: Pagination: PageCount: 5 StartPage: 42 Subjects: – SubjectFull: Tuition Type: general – SubjectFull: Federal Aid Type: general – SubjectFull: Higher Education Type: general – SubjectFull: Student Financial Aid Type: general – SubjectFull: State Aid Type: general – SubjectFull: Human Capital Type: general – SubjectFull: Educational Finance Type: general Titles: – TitleFull: Does Federal Aid Hike College Tuition? Type: main BibRelationships: HasContributorRelationships: – PersonEntity: Name: NameFull: Adam, Michelle IsPartOfRelationships: – BibEntity: Dates: – D: 01 M: 12 Type: published Y: 2005 Identifiers: – Type: issn-print Value: 0013-127X Numbering: – Type: volume Value: 71 – Type: issue Value: 4 Titles: – TitleFull: Education Digest: Essential Readings Condensed for Quick Review Type: main |
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