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Matthew LeBar

Economic In-Tuition: Federal loan programs actually harm students

College is getting more expensive, and governmental financial aid usually seems like the solution, but it’s actually part of the problem

In light of rapid tuition increases over recent decades, one of the most common propositions to make college more affordable is to increase federal financial aid. However, like an inflatable dartboard, this idea turns out to be somewhat less than stellar upon closer examination.

On the surface, it seems like an entirely reasonable response — if students get more money, they will better be able to pay for the costs of college. Increasing federal financial aid, however, has a hidden effect of raising the price of college rather than making it more affordable. If students suddenly have access to more funds thanks to student loans, universities can advertise a higher price that students will still be willing to pay. Essentially, the demand for college increases, yet the supply of college remains unchanged. Simple intuition of supply and demand shows that this scarcity raises the cost of college. Clearly, financial aid directly exacerbates the immediate cost of college, but we must also consider its long-term impact.

The Federal Reserve Bank of New York, an authority on student loan research, reported that from 2005 to 2012, people’s average student loan balances over all ages increased almost 60 percent, from $15,651 to $24,803. This debt means that graduates are less likely to move forward economically — they can’t buy a house when they’re already burdened with debt from college. Taking this one step further, household formation through auto loans and mortgages — traditional means of economic advancement — has slowed.

So, using government student loans to make college more affordable is roughly as effective as putting out an electric fire with water. If this is not a solution to the rising tuition costs, what is? The truth is that, unfortunately, there’s no magic fix. To combat the persistently rising tuition costs, we must be willing to trade it off with something else. Think of cutting costs as going on a diet: to do it effectively, you must make some sacrifices. We can’t have everything: if we want to cut down on college costs, we need to cut down on the costly elements of college, which are often the most fun elements. Lavish fitness centers, above tolerable dining halls and gargantuan football stadiums are certainly nice amenities, but they come with a price tag that might outweigh their benefits.

In last week’s Economic In-Tuition column, Rob Hammer discussed the steep costs of college housing. If we really care about the costs of college, maybe colleges should privately contract housing for students or stay out of it entirely. After all, it’s not just the increased autonomy that makes moving out of the dorms so attractive. It’s a much cheaper way to live as a student, as many will attest. Other possibilities are to increase teaching loads of professors or decreasing the amount of administrators.

There are lots of ways to cut down on college costs, but unfortunately none of them are as simple or nice as increasing federal financial aid seems to be. There is no way to cut college costs without making some sacrifices. It might be hard to do that, but if we truly care about student debt and access to education, it’s a goal worth striving towards. 

Matthew LeBar is a senior in high school and a research assistant at the Center for College Affordability and Productivity. Email Matthew at

Joe Hartge is a senior studying economics at Ohio University and a research assistant at the Center for College Affordability and Productivity. Email Joe at

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