The Tuition Aid Trap

Americans, it seems, have never been better educated. Between 1970 and 2000 the number of individuals enrolled in institutions of higher learning increased from about 8.5 million to 15.3 million. Likewise, from 1971 to 2001, the percentage of 25- to 29-year olds in the United States holding at least a bachelor’s degree rose 71 percent. So why, as Congress prepares to reauthorize the federal law governing higher education, are policy makers so unhappy?

The answer is the ever-rising cost of college tuition, and the anxiety it’s causing students and parents. Fortunately, a new report from the House Committee on Education and the Workforce, The College Cost Crisis, contains clues to a solution – if only policy makers would see them.

The report — released to herald the reauthorization of the Higher Education Act — quickly identifies the tuition rocket’s likely fuel: “Beginning with the Higher Education Act of 1965, the federal government … has provided significant funding to help ensure that low- and moderate-income students and families are not prevented from receiving a postsecondary education simply because of financial circumstances.” This year, thanks to the Education Act, “roughly $90 billion [was invested] in higher education, with the bulk of that money, about $65 billion, [going] directly to students….”

Consider that $65 billion going directly to students and its effect on demand: A student will “purchase” education at a price he can afford. Extra education money enables him to pay a higher tuition. In the aggregate, multiple billions in student aid artificially inflate demand — and average tuition — as students who might not have gone to college do, and others attend more expensive institutions than they otherwise would have. The College Cost Crisis acknowledges that federal aid has produced just such an effect: Pell Grants alone, it boasts, have “made the dream of college a reality for millions of students” by helping to “defray the cost of higher education.”

On the supply side, this federal aid makes universities less sensitive about their own costs. “[I]ncreases in financial aid in recent years have enabled colleges and universities blithely to raise tuitions, confident that Federal loan subsidies would help cushion the increase,” then-Secretary of Education William J. Bennett said in 1987. The “Bennett hypothesis” — the theory that as long as the government ensures the bills will get paid, colleges will raise tuition — makes sense, especially in light of Washington’s guarantee of an affordable college education for all who want one. It’s a reality corroborated by Murray State University President Dr. F. King Alexander, who in a recent hearing centered around Crisis, told the House Subcommittee on 21st Century Competitiveness that some schools do, in fact, raise tuition because government will cover it.

Unfortunately, despite Dr, Alexander’s revelation, subcommittee members spent little time digging deeper into the Bennett hypothesis. It’s an attitude reflected in The College Cost Crisis, which gives Bennett’s theory only a cursory — but emphatic — nod, with quotes from recent news articles: “Because parents and students keep coming back for more, there is ‘no market constraint to keep them from raising tuition,’ Newsweek quotes Ronald Ehrenberg, director of the Cornell Higher Education Research Institute, as saying. ‘People continue to knock on their doors.’ And, of course, the federal government continues to increase spending….”

So how does the report suggest dealing with tuition inflation problem? Having colleges and universities police themselves, abiding by a commitment “to not only acknowledge the problem but work toward addressing it, and broad cooperative efforts from all stakeholders in higher education….”

Good luck. If the Bennett hypothesis is valid, schools have no incentive to police themselves. As long as colleges compete, and university jobs and salaries depend on schools drawing kids away from competitors, institutions of higher learning won’t stop buying the latest equipment, building new facilities, and hiring expensive, “celebrity” professors. That is, unless tuition and other funds become more scarce.

Reauthorization of the Higher Education Act is an excellent opportunity for all the college-educated folks in Congress to explore the real causes of skyrocketing tuition. Unfortunately, if The College Cost Crisis is any indication, higher education will continue to be treated as a federally insured entitlement, driving politicians to continue fueling the tuition rocket they say they want to slow down.