Experts say federal financial aid leads to higher college costs

Why have college costs skyrocketed over the past few decades?

According to Richard Vedder, Director of the Center for College Affordability and Productivity, the biggest reason for the increase in college costs has been the increase in federal financial aid.

Financial aid programs not helping needy students

Knowing that the federal government will increase financial aid to cover costs, he argues in an article for Forbes that colleges have been able to raise fees substantially, putting that money toward administrative costs and luxurious facilities in order to compete for students.

Since 1978, fee increases have over doubled, to closer to 3% a year, reflecting the enormous growth in student loan and grant programs.

It is very unlikely, then, the the rise in tuition fees will stop without some reform of federal student financial aid programs.

Because of these increases, federal financial aid has not been able to do the job it was originally intended to do: give a greater portion of low-income students access to an affordable college education.

While overall enrollment has increased, the percentage of college graduates from the bottom quartile of the income distribution is now about 10%, compared with 12% in 1970, when loan programs has just started.

More graduates, but worse outcomes

As enrollment has increased, so has the number of under-employed college graduates taking jobs previously held by high school diploma holders.

And many of these graduates have student loan payments they can’t afford because they aren’t making enough money in their job, or can’t find one to begin with.

This has helped contribute to the over $1.2 trillion in overall student loan debt–and the average student loan debt increasing each year.

Solving the financial aid problem

Of course, downsizing financial aid without colleges lowering their costs will just make it harder for low-income students to afford college.

While we encourage all students to take advantage of federal financial aid programs, as well as outside scholarships, we agree that increasing financial aid allows colleges to take advantage of students by raising tuition each year.

Colleges need to be incentivized to lower costs, so that government money can go toward the students who really need it, and a college education can be made more affordable for everyone.

Until then, we can help your family pay for college and reduce your college costs. To learn how we can help, give us a call toll-free at 1-888-234-3907 or contact us using this form.

Do you think federal financial aid is a factor in rising college costs? How can colleges be incentivized to stop raising their prices? Let us know in the comments below, on Facebook, or on Twitter at @CFGCollege.