Are tax-funded student loans and grants financial “aid” or financial harm? ”Harm,” political scientist Gary Wolfram would say. Tax-funded financial aid “results in increased tuition, leading to political pressure to further increase aid. This in turn leads to higher tuitions,” he writes.
Basic economics predicts that subsidizing the purchase of a product increases demand for it, and hence increases the price. For example, in four-year public schools, a one dollar increase in student loans was associated with a 93-cent increase in average tuition students paid, writes Dr. Andrew Gillen in his study “Financial Aid in Theory and Practice.”
Dr. Gillen shows that since 1986, the federal government’s financial “aid” has nearly tripled. During this time per-student fees and tuition have almost doubled, Gillen shows. Student debt “has generally outpaced inflation” and family incomes, reports US News and World Report.
Educational opportunity hasn’t faired well, either. In 1972, students in the top income quartile were six times more likely to earning a bachelor’s degree by age 24 than those in the bottom quartile. Today, upper income students are eight times more likely, notes economist Richard Vedder, author of Going Broke by Degree.
Politicians win points for being “pro education.” But politically-driven financial “aid” for college is truly harmful. Low graduation rates show that “aid” distorts people’s career choices by encouraging them to attend college, even though learning valuable skills in an unsubsidized apprenticeship might be wiser. They drop out after realizing they’ve wasted time learning unmarketable skills. Then they must pay off debt, if they can find a job in today’s “stimulated” economy.