Aug 3, 2015
One of the sureties of economics is that if you subsidize something you get more of it. Similarly, if you tax something, you get less of it. It’s almost always true that some subsidy to one group will spill over into being a subsidy to others that we’re not quite so sure that we’d like to subsidise.
A new study from the New York Federal Reserve found:
When students fund their education through loans, changes in student borrowing and tuition are
interlinked. Higher tuition costs raise loan demand, but loan supply also affects equilibrium
tuition costs—for example, by relaxing students’ funding constraints. To resolve this simultaneity
problem, we exploit detailed student-level financial data and changes in federal student aid
programs to identify the impact of increased student loan funding on tuition. We find that
institutions more exposed to changes in the subsidized federal loan program increased their
tuition disproportionately around these policy changes, with a sizable pass-through effect on
tuition of about 65 percent. We also find that Pell Grant aid and the unsubsidized federal loan
program have pass-through effects on tuition, although these are economically and statistically
not as strong. The subsidized loan effect on tuition is most pronounced for expensive, private
institutions that are somewhat, but not among the most, selective.
http://www.forbes.com/sites/timwors...se-the-price-of-college-tuition/#3fa260942b88
The Future Of An Illusion: The Higher-Ed 'Funding Cuts' Myth
May 11, 2015
Over the past quarter-century, average tuition prices have increased 440 percent—far more than the Consumer Price Index and even health-care costs over the same period. At roughly $1.2 trillion, student-loan debt stands above total national credit-card debt for the first time in history. The U.S. military budget is roughly 1.8 times larger than it was fifty years ago, during the same period, “legislative appropriations to higher education are more than ten times higher.” Tuition hyperinflation, rather than being a direct effect of “funding cuts,” instead “correlates closely with a huge increase in public subsidies for higher education.” To make this point more concrete, “if over the past three decades car prices had gone up as fast as tuition, the average new car would cost more than $80,000.”
http://www.forbes.com/sites/tomlind...the-higher-ed-funding-cuts-myth/#594f45471ea7
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