While lawmakers consider expanding the budget for federal student aid programs under the Higher Education Act (HEA), Dr. Gary Wolfram contends that such programs should be phased out entirely.
In his Jan. 25, 2004, Cato Institute report entitled “Making College More Expensive: The Unintended Consequences of Federal Tuition Aid,” Wolfram, Hillsdale College Munson Professor of Political Economy and Professor of Economics, argued that federal student assistance increases tuition costs and threatens the independence of universities.
According to Wolfram, tuition fees continue to rise dramatically because federal student aid increases the demand for higher education while the supply of such education remains fairly constant.
“In the 10-year period ending in 2004-05, tuition and fees at four-year public colleges and universities rose 51 percent and rose 36 percent at private colleges in constant 2004 dollars,” Wolfram's report said.
Ten million students, almost 60 percent of all undergraduate students, currently receive federal assistance. This, of course, does not include Hillsdale students.
Rather than giving more mone to HEA programs, Wolfram proposed that Congress should consider a 12-year phase-out of all federal student aid. Wolfram said he suspected tuition would thus decrease and federal aid would be replaced with private-sector aid.
Scott Page, a professor of economics and political science at the University of Michigan, agreed with some of Wolfram's findings.
“Here is where his logic is airtight,” Page said. “By giving people money to pay for college, you are increasing demand for college. If instead, the money was given to the universities, you would increase the ‘supply of college.' Unless everything he and I ever learned in economics is patently wrong, in the first case price rises, in the second case price falls.”
Page also agreed with Wolfram's warning that accepting federal aid threatens schools' autonomy.
“If you take money from the man, you owe the man,” Page said.
Page continued on a different note from Wolfram, however.
“There is a larger point here though that I don't want to be missed,” he said.
“These programs were instituted to help poor disadvantaged people get a leg up, to make something of themselves. Making college more affordable for some—the poor—may make it more expensive for others—the rich and the middle class—it may also entail the sacrifice of some autonomy. There are tradeoffs. In identifying those tradeoffs we cannot lose sight of the need for compassion.”
Wolfram proposed that “human capital contracts,” suggested 40 years ago by Nobel Laureate Milton Friedman, could be an alternative to federal aid, especially for the poor.
“It is like creating a stock market for human capital,” he said.
“Rather than a poor student getting $4,500 a year in Pell grants to go to the University of California that charges $20,000 in out-of-state tuition, a block of investors would fully fund the student's education in return for a share of their future income.”
Page expressed doubts about the plausibility of such contracts.
“I doubt that most 18-year-olds could understand the consequences of such a contract,” he said. “Think of how well most 18 year olds would do with a credit card with a $20,000 limit.”
Hillsdale College senior Luke Morris agreed with Wolfram's findings.
Calling federal student aid a “vicious cycle,” Morris said, “This is more than an economic issue—it's also a moral requirement. No one person has the right to hold a gun to another person's head and force him to pay for someone else's education, and thus no one has the right to use government to serve the same purpose.”
Morris said he is confident “we won't be left in illiteracy just because Big Brother isn't there to pay for our education.”
Wolfram admitted it is difficult, due to many varying factors, to determine how significant a role federal student aid plays in raising tuition fees.
“But the point of the paper is not to figure out how much it raises tuition, but to show that the federal government is not addressing all the unintended consequences of its actions,” Wolfram said.
“There is no way that the federal government can know how inefficient this program is, and if it is going to spend billions of dollars per year on the program, it should know.”
The full text of Wolfram's report can be found at www.cato.org/pub_display.php?pub_id=3344 .