News Release

January 25, 2005

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Federal tuition aid programs result in higher education costs
Government-run financial assistance should be phased out

WASHINGTON -- Instead of making college more affordable, federal aid programs are actually driving up the cost of tuition, according to a new Cato Institute study.

In "Making College More Expensive: The Unintended Consequences of Federal Tuition Aid," Hillsdale College professor Gary Wolfram demonstrates that financial aid programs, including the Federal Work Study Program and the Perkins Loan Program, are increasing the cost of tuition. Additional federal support increases the demand for college tuition; this is followed by even more federal support, which again boosts the demand for college aid.

Although other factors have contributed to the rise in tuition costs, such as greater technology expenses and higher faculty salaries, Wolfram points out that "there can be little doubt that federal aid has, at a minimum, allowed colleges and universities to increase tuition beyond what would otherwise be the case."

"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," he writes.

Wolfram proposes that instead of expanding the government's present system, "Congress should consider a phase-out of federal assistance to higher education over a 12-year time frame."

This gradual elimination of funds would have a two-fold effect: a lowering of tuition prices and a response from the private market. Consequently, the private market response would lead to additional private-sector loans and scholarships and would promote "the expansion of human capital contracts, which are similar to owning stock in the future earnings of a college graduate."

Wolfram adds that encouraging people to go to college should be a task left to states and individuals because the Constitution does not give the federal government power to provide education.

Policy Analysis no. 531

Contact:
Gary Wolfram, George Munson Professor of Political Science at Hillsdale College,
517-607-2376

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