Sunday, October 6, 2013

Abolishing student aid could force schools to lower prices - wisdom from a former student

New Voices:

By Holly Jean Soto (economics major, George Mason University) Special to the Orlando Sentinel
Abolish government financial aid for students.
My dear friend, who is a statistics major and a government-aid borrower, is fearful of this statement.
"Don't try to get rid of that," he says. "I need that money for school."
What he fails to realize, as I am sure many other  federal-student aid borrowers do, is that getting rid of aid would improve the lives of American students today.
The first harsh reality that student borrowers fail to see is that any government giving begins with government taking away. Government is the only institution legally allowed to take by force.
Government does not send a letter to each American saying, "Hello, fellow American, would you like to take a fraction of your income to fund another person's education?" No. It is taken, whether I'm willing to contribute or not.
Another harsh reality of students taking government aid is that progress, efficiency and effectiveness don't begin with someone else's money.
If students had to pay for school out of their own pockets, we would see fewer students hanging around campus on their 100th credit hour still trying to decide on their majors, fewer students accepting C's and D's as passing grades, and more students going into successful majors.
Also, we would see a portion of students concluding at a faster rate that they would benefit more in an occupation than in school.
Why is all this true? Because it is the students' own money on the line.
Now some people may have concluded that students' providing the funds for their own education allows them to reach a better long-term result, but it is still difficult for students to pay out of their own pockets because tuition is too high.
However, the final harsh reality is that when we participate in taking away from another to pursue our own dream of a college education, we engage in the same act that raises the cost of education. Colleges see that more students than ever before are attending their institutions because the students are able to pay for it with someone else's money.
The CollegeBoard Advocacy & Policy Center in its "Trends in Student Aid 2012" report, found that during the 2011-12 academic year, $236.7 billion in financial aid was distributed to undergraduate and graduate students in the form of grants from all sources. Also, students borrowed $8.1 billion from private, state and institutional sources to help finance their education.
The report also states that in 2011-12, undergraduate students received 98 percent of federal grant aid, 99 percent of state grant aid and 67 percent of federal loans.
As long as these statistics remain so, colleges will continue to raise their prices. What do students with financial aid care? They are not the ones paying those fees.
If we were to abolish financial aid for students, at first we would see fewer students going to college because of lack of funding.
However, colleges and universities observing a lower student population on their campuses, and observing that students who pay out of their own pockets would attend their school when tuition cost is low, would now compete with other schools to offer the lowest possible price.
Ultimately, even the poorest of families would attend school at their own expense because getting rid of government financial aid gives universities the incentive to compete, and just as with any product or service, when competition breaks out, suppliers lower their prices.
If a 21-year-old student can understand the harsh realities of federal financial assistance, why can't the rest of American students?


  1. I've had this argument with too many people; the sad truth is that no matter what you point out to them, the majority will remain blissfully ignorant to the fact that the government is causing this bubble in our college tuition in a very similar manner to how they contributed to the housing bubble. And yet they continue to complain about how much our tuition seems to keep going up every year (which for the record has been at a rate 4 times faster than inflation in the past quarter century). UCF is at a record high 60,100 students this semester and you can feel how overcrowded it's getting from just driving around trying to find a parking spot. I'm wondering how much longer this population growth is sustainable for the university.

    Honestly, society puts too much emphasis on needing to go to college and get a bachelor's degree to be successful in life. It's causing students to feel as though they're forced to go to college, put themselves in debt to pay their way through college, and then get into a worse position than before they entered college. Not everyone is college bound. I think everyone should try their best (if possible) to become college ready but some people due to learning disabilities or other reasons cannot and they need to have a different route. Society needs to learn not to look down upon jobs that do not require a college degree but can pay well: Plumbers, car mechanics, sales reps, electricians, and others. These jobs are becoming very abundant and can actually pay more than some degree requiring jobs.

    The fundamental problem with the whole "you have to get a bachelor's degree to be successful in life" mentality is that once everybody has a bachelor's degree, eventually that renders that degree worthless as a measure of competitiveness in the eyes of employers.

  2. It is "the price the market will bear". Easy loans increase the price. Just ask a car dealer.

  3. 1. Government-provided financial aid is "someone else's money," but the borrower has to repay the money borrowed. Most government-sponsored loans run at around 6% interest, so in fact the government is making money on these loans. This essay never acknowledges that fact.

    2. Many states have drastically cut their funding for state universities, so the colleges have to make up that funding somehow. Tuition hikes are the easiest and most direct route. It's simplistic to assert that the reason universities raise their rates is because student loans are easy for borrowers to get.

    3. There is no way that the law of supply and demand would ever cause public or private universities to lower their tuition rates to the point that "the poorest of families would attend college at their own expense." The poorest of families are working two jobs and still needing food stamps to survive.

    4. Expensive as it is, a college education will still reward the graduate with a much higher income over his or her lifetime than if he or she had not gone to college.

  4. @Russ Kesler

    1. Student loans only account for a fraction of federal aid. Pell grants are more commonly used and a student can get as much as $5500 per year. This they do not have to pay back directly.

    2. Decreased funding from states can be a factor, but over half of undergraduate students receive federal aid in the form of pell grants. How is this not significantly increasing the demand?

    3. Why not? Are there not any services that the poor can afford today but not in the past?

    4. Less federal aid would provide a disincentive to obtain a nonprofitable college education.

  5. @Russ

    1. While this may be true for now, the dollar amount of loans outstanding keeps growing and more students are defaulting every year that passes. Plus, you have to consider that the government offers programs that base payments on disposable income, family size and so on, so effectively a borrower can have minimal payments as long as he's earning a low salary or has a big family.

    Not only that, but the gov. also offers debt forgiveness on the full balance after a number of years (May be 20 or 25, I know the current administration wants to lower it). AND if the borrower decides to go for a career in government the number of years is reduced to only 10. Tax payers are, effectively, paying the remaining balance of those that reach that point.

    Lastly, around one fifth of borrowers are currently in default. I just don't think programs like this, or SS or Medicare or whatever else they give for "free" these days, are sustainable in the long run.

    Thanks for taking the time to read my comments