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Friday, March 11, 2016

Federal Student Aid Is Responsible for Ever-Increasing College Tuition Costs

A consensus is growing that federal student aid, however well-intentioned, is directly responsible for increases in college tuition over the past few decades. One studyestimates that expansions of federal student aid roughly doubled tuition costs relative to a baseline, while anotherfinds that each dollar of subsidized Stafford student loans boost tuition by 65 cents. The logic is simple: when students have access to a generous line of credit, colleges will raise their prices because their students can easily borrow the money to pay them.

In theory, since there is a cap on how much students may borrow through the Stafford student loan program (the most common form of student loan), there should be an upper limit to how much federal student aid can fuel tuition increases. Currently, the aggregate cap stands at $31,000 for undergraduate dependent students. But as the cost of college approaches this cap, more and more borrowers may take advantage of a back door—the Parent Loans for Undergraduate Students (PLUS) program.

PLUS loans are loans which the federal government makes to the parents of dependent undergraduate students to finance the students' tuition. (Independent graduate students are also eligible.) They carry a higher interest rate (6.8 percent) than Stafford loans, which have a rate of 4.3 percent for undergraduates. Parents are eligible if they or an "endorser" can pass a basic credit check. Most importantly, there is effectively no credit limit—parents may borrow up to their student's cost of attendance.



Anonymous said...

BS. Over spending by the colleges is to blame.

Anonymous said...

Parent Plus loans have been around for a long time. Don't blame it. I have been out of college for 26 years and my parents had one for me.

The blame lies with the students, who are now adults graduating with majors that don't have a future, or the future they want. There are ways to getting an education without incurring so much debt, but they are to entitled to work for it.

Anonymous said...

11:59 and 7:49

I guess you just don't know simple economics.

It is the same reason medical costs are so high. When you have ever increasing sources of funding (Federal Loans and Medical Insurance) the ability to charge more for the services becomes easier.