By Richard Vedder
While doing my interview for last night's ABC nightly news special, one of my Whiz Kids, Matt Denhart, got his roommate Tyler McDaniel to give me a hand. I had a nice chat with Tyler, a freshman from a middle class family attending a typical, fairly high quality state university (Ohio University), where he is doing well academically.
Tyler had just received FAFSA based financial information for next year. We started talking a bit about his financial situation, which I will not share with you because of privacy concerns, but I was struck by Tyler's main point: his family was responsible and saved for college, and as a consequence receives little financial aid. Other kids from families with similar financial circumstances get more assistance -- often because their families were less responsible, spending more through the years and doing less saving for college for their children. Tyler, in effect, said, "my parents are being punished for being responsible." Tyler, of course, is right.
I have generally championed the concept of need-based aid, although I have been critical of excessive federal involvement and an overabundence of financial aid funding. I am beginning, however, to shift my position a bit, becoming more skeptical of much need-based aid on several grounds. First, Tyler's point is well taken, and there is a huge implicit tax on people who have saved for college. This is bad in terms of promoting economic behaviors detrimental to the nation. On macroeconomic grounds, current aid policies are suspect. Second, I am beginning to wonder if much so-called need-based aid is used to fund either submarginal students who have very high college attrition rates, or students from families that could have paid for college for their kids if they had been more responsible. Third, perhaps the best way to enhance parental responsibility is to administer tough love, that is to slowly but surely reduce the financial assistance commitments made by third parties to students, usually with government funds.