Commentary

Busting the Myth About Shrinking College Financial Aid

This article appeared on Foxnews.com on June 16, 2006.

Remember all the warnings that the United States was about to be left in China’s economic dust? The Chinese were producing 600,000 engineers in 2004 while we eked out only 70,000.

You know, the ones that fueled President Bush’s American Competitiveness Initiative and seemed to substantiate every ivory tower call for more public spending on scientific research and training?

Well, it turns out the figures were a little shaky, and the National Academies, which authored the most influential of all the reports containing the frightening figures, was eventually forced to amend them. Apparently, the Chinese cranked out only 350,000 “engineers, computer scientists, and information technologists with 4-year degrees,” and we graduated about 140,000.

Oh well. It’s par for the course, really: Ivory tower advocates and student groups constantly hype dubious data and unsubstantiated claims. Why wouldn’t they? It’s a great way to get free money.

Another lucrative and well-hyped myth is that federal student aid has been shrinking. It’s a particularly popular legend with organizations like the State Public Interest Research Groups (State PIRGs) and the growing cottage industry of twenty-somethings who complain professionally about student debt.

According to the College Board, which reports annually on changes in student aid and college costs, aid has actually been growing – a lot! By the Board’s numbers, between the 1994-95 and 2004-05 academic years, total inflation-adjusted federal student aid more than doubled, from $44.5 billion to $90.1 billion.

And that growth wasn’t only in loans, as student advocates often complain. Real Pell Grant funding rose from $7 billion to $13.1 billion, supplemental grants increased from $743 million to $771 million, work-study rose from $965 million to $1.2 billion, and federal tax benefits increased from nothing to more than $8 billion.

In fairness, just because total federal aid grew doesn’t necessarily mean that aid per-student rose. Maybe State PIRG members and twenty-something agitators still have a legitimate point. Or maybe not: Again, according to College Board data, between 1994-95 and 2004-05 inflation-adjusted grant aid per student from both federal and other sources ballooned 51 percent, from $2,965 to $4,479, and overall aid rose 61 percent, from $6,261 to $10,119.

Moreover, both grant and overall aid increases outpaced the growth in college costs.

So how much more does aid need to grow before it stops “shrinking”?

Finally, let’s look at a myth that seems to be invoked anytime someone wants to give taxpayer dollars to the ivory tower, whether the immediate goal is to fund new research or defray student costs: Increasing public funding for higher education is essential to our economic well-being.

As reasonable as that sounds – better educated people are more productive and make more money, so we should put more money into education – there’s a problem. Unless states or countries cut spending in other areas, they have to raise taxes to increase funding for higher education. But that’s bad for the economy.

In fact, after analyzing higher education spending and economic growth for all states and the District of Columbia between fiscal years 1979-80 and 1999-00, economist Richard Vedder found that a 10 percent increase in state higher education funding reduced a state’s rate of economic growth 5.2 percent. Clearly, states would have been better off if they’d just let taxpayers keep their money.

So what are the common denominators that bind all these myths, other than their falsehood? They always target taxpayer dollars, and always serve the people propagating them.

Consider, for instance, the committee that put together “Rising Above the Gathering Storm,” the National Academies’ report with the flawed data on Chinese engineers. Ten of its 20 members were employed in higher education, and most of the others led big corporations that would love to see taxpayers fund research they’d rather not finance themselves.

Or take the State PIRGs. They started on college campuses in the early 1970s and are heavily influenced by college students. Any question why they might want to slap some lipstick on the student aid pig? Finally, politicians love all these myths because they give politicos big “problems” to “solve” and hence justify their existence.

The true catastrophe in all of this, of course, is not that the United States can’t compete with China, or that college students are starving. The real problem is that policies based on these myths steal from taxpayers in order to enrich the ivory tower. Unfortunately, that’s a problem that never gets hyped.

Neal McCluskey is a policy analyst at the Cato Institute’s Center for Educational Freedom.