Thursday, June 11, 2009

Commandment #2: Fund Students Instead of Institutions

Commandment #2: In general, fund students and not institutions --eliminate general institutional subsidies in favor of targeted scholarship assistance based on need and merit

By Robert Villwock

The cost of obtaining a college degree is rising each year at a staggering pace. According to, the cost of tuition and fees at private colleges and universities has risen by 11 percent in the last five years and nearly 6 percent in 2007 alone. At public universities, the President’s website says that tuition has risen by 35 percent over the past five years. Over 200,000 students have been priced out of a college education as a result of the price increase, again according to the President’s website.

The issue is a serious one that involves reform and innovation on the part of lawmakers and others involved in the decision making process of higher education financing. The current system of federal financial aid has allowed college prices to rise. While giving more money to higher education sounds like a good idea, it has had the unintended consequence of justifying the aforementioned tuition increases, as Andrew Gillen's report, Financial Aid in Theory and Practice, found.

The major point to keep in mind is that schools understand how much money they will receive from the government and therefore justify it as a means of raising tuition and fees. Just as is the case with inflation, as more money comes into the university in the short run, it raises the price in the near long term (strikingly similar to the results found by Milton Friedman in the 1970s regarding inflation).

The problem, therefore, is not the amount of money dispersed by the government, but rather how the money is dispersed. Instead of giving aid to universities, the money would be more efficiently spent if it were given directly to students. Universities would not be able to justify large increases in tuition and fees and would therefore be forced to provide the best quality product to attract students. A student who earned aid from the government would be free to pick the university of his or her choice and apply the aid earned to the cost of attendance.

As opposed to the current system that gives money to the school and allows the school to allocate the aid, this system empowers worthy students to pick the college that best suits their needs as well as one that offers the best quality education for the price.

The trend for universities in a financial aid system like this would naturally be to please students in every way possible. A 5 percent per year tuition raise would strike students as unjustifiable and result in less attendance the following year. Seeing as cost is one of the major deciders for most students, the school that delivers the highest quality product at a comparatively low price would be the winner. Schools, looking to accommodate its customers, would be forced to cut costs across the board to win new customers.

If this system was to be implemented, I suspect community college would become a much more favorable choice among students. A person would be able to get a comparable education at a community college for the first two years of school at a large discount and transfer to a public or private university to complete his or her degree. Some community colleges offer students a guideline of courses that transfer to public universities, which helps students stay on track for an on-time 4 year graduation from the public university. The opportunities are there for lawmakers to reform the current financial aid system, unfortunately the decision makers do not seem to understand the real problem.

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