Wednesday, November 15, 2006

Access, Student Aid and the New Democratic Majority

By Richard Vedder

I am quoted in today's Wall Street Journal as sounding somewhat skeptical that interest rate reductions, more tax credits, and expanded Pell Grants are really going to increase college affordability and access that much, given the positive impact that these things have on college tuition fees. The Democrats are making college affordability a big issue, which is a good thing. However, the solutions to the problem that they propose may be worse than the disease.

As usual, a little historical perspective is useful. The big rise in student participation in higher education came in the era before Pell Grants, massive government loan programs and the like. Let us look at college enrollments per 1,000 Americans. In 1870, barely one person out of every thousand Americans was a college student. By 1940, that figure had risen to between 11 and 12 college students per one thousand, and to beyond 31 per thousand by 1965, the year of the Higher Education Act and the first really serious, comprehensive and sustained federal involvement in student financial assistance, excluding, of course, the GI Bill.

However, it wasn't until about 1980 that federal involvement ramped up to significant levels -- that was the year the expression "Pell Grant" entered the English language. At that time, there were already over 50 college students per 1,000 population. The massive infusion of federal monies for student financial assistance since 1980 has been accompanied by a pronounced slowdown in the rate of growth in student participation. Today, the number of college students per 1,000 population is still in the high 50s, only modestly higher than in 1980. It appears the impact of greater student aid availability has been offset by rising tuition fees, so that the long-term rate of growth in university participation has actually started to slow considerably.

In other words, the Law of Unintended Consequences is as work. More aid means higher tuition, so the winners from aid programs are not students so much as educational institutions that increasingly live in the lap of near-luxury. The slowdown in participation growth actually probably is a good thing --too many, rather than too few, kids may be going to college as high dropout rates attest. But the way to optimize enrollments is not to drop money out of airplanes over student homes and then have colleges raise their fees sky high, which, roughly speaking is what we are doing now, and which the Democratic proposals will almost certainly aggravate.

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