What We Really Need to Do to Make College Affordable
College costs continue to surge, with tuition increasing 238% between 1980 and 2016, far outpacing the 191.3% inflation rate during the same period.
Most students now pay between $6,000 and $15,000 just in tuition annually for public and private colleges in the United States. And although federal student aid has more than kept pace with inflation over the past several decades, it has not kept pace with excessive increases in college costs, leading Americans to amass a staggering $1.7 trillion in outstanding student loan debt.
Colleges and universities are the beneficiaries of these massive student loans, atop other federal subsidies they receive. In 2019, higher education institutions received $91 billion in federal student loans and $30 billion in federal student grants.
Increasing federal subsidies for the status quo merely privileges a traditional college-going pathway over all other forms of learning. It also stifles innovation in the marketplace by protecting colleges and universities from having to compete fairly with higher education alternatives or share an appropriate level of financial risk for outcomes realized by students.
Policymakers have centered the higher education debate around three proposed areas for increased federal spending: free community college, doubling the Pell Grant award, and student loan forgiveness. Each deserves scrutiny because each misses an opportunity to address the root cause of ballooning college costs.
Free community college
Community colleges already provide the most affordable college options, with an average annual resident tuition of $3,340. But the free college proposals contain perverse incentives that could lead states to increase the price tag to secure a larger share of federal matching funds. They may simply serve to stimulate additional price inflation.
Additionally, a federal-state partnership based on tuition replacement will be problematic because the price tag for community colleges varies widely. States that have let tuition costs soar would be rewarded with a higher-dollar federal bailout. In contrast, states that have invested in keeping college affordable would be penalized.
Doubling the Pell Grant Award
Pell Grants already cover up to $6,495 of college expenses each year for students with a demonstrated financial need, currently up to 12 semesters, amounting to nearly $39,000 in federal aid that doesn’t need to be repaid. In mid-June, lawmakers introduced the Pell Grant Preservation and Expansion Act of 2021 to double the maximum Pell Grant award amount within five years, extend lifetime eligibility from 12 to 18 semesters, and make the Pell Grant mandatory, not discretionary, federal spending. If enacted, a student receiving a maximum Pell Grant award of about $13,000 per year for nine years would receive $117,000 over their lifetime. Research on tuition rates and federal student aid suggests we should expect tuition and fees to rise in kind as federal Pell Grant subsidies grow exponentially.
Other proposals to expand students’ options to use Pell funds for short-term programs still limit these to programs offered only by higher education institutions, so it leaves an entire sector of innovative non-college training programs off the table. Any increases to Pell that still limit it to colleges and universities reward an already costly higher education system with more federal subsidies, leaving taxpayers, even those with no postsecondary education, to foot the bill.
Student loan forgiveness
Broad student loan forgiveness does little to address the rising cost of education. It punishes those who work hard to save for their education or make conscious trade-offs to pay for their education instead of taking on student loans. Further, it helps the affluent much more than the less well-off, with most of the economic benefit accruing to high-income individuals.
Plus, forgiveness programs already exist through public service loan forgiveness and income-driven repayment options, which sets repayment amounts based on individuals’ earnings and family size. Forgiveness programs admittedly have limitations, including burdensome bureaucratic requirements, but serve as an alternative to broad forgiveness. Policy reforms should ensure students don’t accrue more debt than necessary and should drive institutions to be more transparent about students’ return-on-investment based on costs of attendance versus expected earnings.
The status quo funding model needs to change
Efforts to make college free or double the maximum Pell Grant Award and make the federal government the primary or single payer will do little to control or mitigate rising tuition costs. Nor does it make sense to continue funneling billions of taxpayer dollars into a system that has yielded only marginal gains in six-year and eight-year college completion rates.
The Title IV system should be improved, but the answer isn’t more federal spending – it’s a better utilization of existing resources. And a better system allows for more options that fit the needs of learners in the 21st-century economy. For many learners, that might still be a traditional associate or bachelor’s degree. For others, it might be a higher education alternative.
Learners should have the freedom to use their need-based funding to pursue high-quality, individualized pathways aligned with their goals and aspirations and not be locked into programs offered only by colleges and universities.
The proposed changes to the Title IV system do nothing to help them. Instead, changes reward an already costly higher education system with more federal subsidies, leaving taxpayers, even those with no postsecondary education, to foot the bill.