Sunday, July 12, 2015

Fed research: Student aid mostly raises the price of college tuition

Increasing federal student aid leads colleges to raise tuitions, offsetting the benefit to students, according to new research published by economists with the Federal Reserve Bank of New York.

The new analysis finds that the majority of an increase in subsidized student loans or grants translates to higher tuitions, and that at least in the short run, added loans do not boost enrollment.

"[W]hile one would expect a student aid expansion to benefit recipients, the subsidized loan expansion could have been to their detriment, on net, because of the sizable and offsetting tuition effect," write David Lucca and Karen Shen of the New York Fed and Taylor Nadauld of Brigham Young University.

The study is evidence in favor of the so-called "Bennett Hypothesis," formulated by Reagan Department of Education Secretary William Bennett, that increases in government student aid allow universities to "blithely" increase tuition without losing students. It is one of the few such data points in the ongoing debate over federal policy and the $1.1 trillion plus in aggregate U.S. student debt that has accumulated as tuitions have soared.

The researchers find specifically that a dollar of added Pell Grants or an added dollar of subsidized direct loans translate to 55 cents and 65 cents in higher tuition, respectively.

They arrive at that estimate by measuring differences in tuition changes at schools that had more or fewer students able to take advantage of increased availability of student loans, using data from the Department of Education.

Not only did tuitions rise when Congress increased aid availability, but for-profit colleges saw their stocks jump, the researchers found.

The previous evidence on the question of whether more federal aid was soaked up by higher tuitions was thin or mixed. A few papers, however, have found similar results.

A 2012 paper by George Washington University economist Stephanie Riegg Cellini and Harvard economist Claudia Goldin found that greater student aid mostly translated to tuition hikes at for-profit schools. A 2013 National Bureau of Economic Research working paper by four economists found that added federal student aid could cause some schools to reduce institutional aid.


Marco Rubio calls for higher education reform in first policy speech of campaign

Presidential hopeful Marco Rubio’s first policy speech of his 2016 campaign focused on a topic near and dear to young voters — higher education.

Rubio pushed Tuesday for a total reinvention of the higher education system, including creating a new university accreditation process, giving more students access to information before they take out student loans, and more flexibility in how loans are repaid.

“The problems with higher education are many, but the ideas from Hillary Clinton and other outdated leaders are narrow and shortsighted,” he said, as quoted by Bloomberg Politics. “We need a holistic overhaul—we need to change how we provide degrees, how those degrees are accessed, how much the access costs, how those costs are paid, and even how those payments are determined.”

He said right now the system is essentially run by a “cartel of existing colleges and universities, which use their power over the accreditation process to block innovative, low-cost competitors from entering the market” and that he would “bust this cartel” with a new process that was more welcoming to low-cost options.

“This would expose higher education to the market forces of choice and competition, which would prompt a revolution driven by the needs of students –- just as the needs of consumers drive the progress of every other industry in our economy,” he said at the event in Chicago.

Rubio’s words echoed those heard around the Hill earlier this year when the Higher Education Reform and Opportunity (HERO) Act was introduced by Rep. Ron DeSantis, a fellow Floridian. This bill would have allowed state accreditation systems to have more freedom. They could create systems and industry-based accreditation boards that could rate alternative institutions, programs, or even individual courses under the act.

Rubio also supported the “Student Right to Know Before You Go Act” in his speech. This act would require institutions to tell students how much they can expect to earn with a given degree before they take out the loans to pay for it, as well as other crucial information to help students better evaluate their decision to take on thousands in debt.

Rubio also took a page out of Purdue University President Mitch Daniels’ book and pitched an innovative idea for student loan repayment that included allowing students to join with investors who would pay their tuition in return for a part of their earnings post-graduation.


Canadian School Denied Accreditation Over 'Discrimination'

Trinity Western University, a 4,000-student evangelical Protestant college near Vancouver, sought accreditation to open a law school, but has been stymied by Canada’s lack of religious liberty. The Law Society of Upper Canada refused to grant accreditation because the school requires students to sign a covenant foregoing all sex other than that within heterosexual marriage.

Naturally, that “discriminates” against not just homosexuals but fornicators, and that’s apparently not acceptable when one is in school to study law. The school argued in court that the covenant governed behavior, not identity, but that also wasn’t good enough.

“Individuals who may not believe in marriage, or LGBTQ persons, may attend [Trinity] but they must first sign the community covenant and thus, in essence, disavow not only their beliefs but, in the case of LGBTQ individuals, their very identity,” the court said in upholding the accreditation denial. “To assert that that result is not, at its core, discriminatory is to turn a blind eye to the true impact and effect of the community covenant.”

In short, if you want a preview of what’s coming to America after the Supreme Court’s recent decision on same-sex marriage, look to our northern neighbors.


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