Student financial aid could hurt, not help tuition rates

When colleges act like businesses, students should expect inflation and rises in tuition.

William Rickards

William RickardsWith students heading back to classes and tuition payments and reimbursements being doled out, it seems as if every fall students and parents alike are forced to reflect on the actual cost of a college education.

Temple has grappled with this question this year, approving a 2.8 percent increase in tuition for the 2015-2016 school year in addition to raising the University Service Fee by $100 last week.

“Our goal is to keep the tuition increase as low as possible and to increase financial aid as much as possible so we can help students manage debt and get out in four years,” Chief Financial Officer and Treasurer Ken Kaiser said in an interview with The Temple News earlier this semester.

As I’m certain Kaiser is aware, tuition rates have skyrocketed in recent years. According to College Board, tuition prices have risen at a rate of almost three times that of normal expenses, long outstripping even credit card debt. Politifact says a bachelor’s degree in the United States currently takes an average of six years to attain and 33 percent of all students take more than six years.

For those students who take even one semester—let alone four—more than the standard eight that a bachelor’s degree is advertised to take, tuition could financially hinder their success.

With these increases, the natural reaction by “compassionate” lawmakers and college administrators is to also increase student aid to those who cannot afford tuition. But a recent report from the New York Federal Reserve Bank indicates while increased federal aid is afforded with good intentions, it may actually make students worse off, and above all, it inflates tuition rates.

According to the report, higher college tuition rates can be traced to increases in federal aid through Pell Grants and unsubsidized loans.

“We find that each additional Pell Grant dollar to an institution leads to a roughly 55-cent increase in sticker price tuition,” the report said. “For subsidized loans, we find a somewhat larger pass through effect of about 70 percent. We also find a loading of tuition on unsubsidized loans of 30 percent.”

Because the university knows aid will likely be afforded to those who can’t pay the sticker price up-front, it can go ahead with raises in tuition, usually only a few percentage points per year. Over the average six years it takes to obtain the degree, though, that adds up.

Tuition rates at both private and public institutions have long outpaced normal inflation. Far from the quality of education miraculously rising to enormous levels necessitating some huge cost, many believe tuition rates have been artificially inflated for some time now.

Outside intrusion from federal loans and grants have produced an environment in which colleges are actually rewarded with federal money when they raise tuition.

According to The Center for College Affordability and Productivity, before 1978, federal aid programs were largely non-existent or quantitatively much smaller than today. Tuition fees today would be more than 40 percent lower if pre-1978 fee growth had been maintained. Typical state schools would have in-state sticker prices of about $5,000 or so, with the more prestigious ones perhaps charging around $7,000.

College, like any business, will raise tuition rates as high as the consumer can bear. If this sounds familiar, it is because a similar bubble—the housing market—was created and broke in 2008.

This inflation is nothing new, and universities are not some malicious entities seeking to jack tuition prices sky high. Instead, like any market, universities are responding to an outer market force pushing tuition higher, often with students’ best intentions.

Unfortunately, with the problem of rising tuition costs, “best intentions” can sometimes have disastrous consequences.

William Rickards can be reached at

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