Roosevelt Institute | Cornell University


By Nicole FeibelmanPublished October 24, 2014

Despite their intention of alleviating student debt, Government grants are losing power and woefully being exploited by private universities, inducing a cyclical increase in student expenses.

By Nicole Feibelman, 10/24/14

Twitter recently saw the hashtag, #PayMyTuitionChallenge, trending on its home page. But what was viewed as an innocuous social media trend actually reveals an enduring problem in the US higher education system: student debt.

The nation has long upheld higher education as vital to achieving higher productivity through expanding job opportunities, competitiveness, and income mobility. The Economy Policy Institute has correlated a well-educated workforce with higher productivity and ultimately higher wages, and the boost to lifetime income from obtaining a college degree is as much as $590,000. Countries, therefore, invest in their own economic development through investing in education.

However, the US, with most expensive higher education system in the world, bears the pressing problem of student debt. Between the two-fold increase in tuition since 1987 and one-third cut in government funding, students and their families are bearing greater college costs than a generation ago. Such debts are affecting undergraduates’ well being even beyond college, impairing their productivity and undermining the primary purpose of attaining this higher education in the first place.

Resultantly, the Obama Administration places Pell Grants in the spotlight as the gateway to higher education. These government subsidies provide need-based grants to promote equal access. The extent of the loan depends on the Department of Education’s formula, including a student’s expected family contribution (EFC), cost of attendance, enrollment status, and whether the student attends the full academic year.

However, the power of these dollars has decreased significantly and therefore the socioeconomic needs of society are not being met. These grant programs are not keeping pace with tuition growth; whereas the maximum Pell Grant award covered 87% of the average tuition in 2003-4, it only covered 63% in 2013-14. Additionally, these funds are not being used efficiently. These grants are intended to increase affordability, but studies suggest that colleges absorb the subsidies by increasing tuition. Every dollar of Pell Grant money leads to a 17-cent cut in institutional aid. Private, for-profit colleges especially, receive 25% of all federal aid for higher education, but charge 78% more than for-profit institutions.

Obama’s recent budget proposal, which increases the maximum Pell Grant by $140 dollars, is thereby ineffective, merely contributing to the nation’s educational inequities and depleting the education sector’s allocated money. With the way we subsidize college today, we are wasting both government money and opportunities in capital investment. As soon as more money is injected, the private sector’s increase in spending shoves the subsidy’s intended monetary power under the mattress. So long as colleges annually spend increasingly more to educate students, students will be coerced into absorbing the costs. The Department cannot endlessly subsidize education; eventually the money runs out and the government’s willingness to bail students out of debt diminishes. Rather than permitting these discrepancies of student aid, the government should consider policies that redistribute and oversee these funds while reducing the cost of providing education.

By financing public education rather than for-profit institutions, the government could amend the excessive grants being offered to private institutions. Over 75% of undergraduates attend a cheap public system, and while federal aid to students doubled to $172 billion throughout the past decade, government financing for public education fell to $76 billion - 30% less than it was ten years ago, in real terms.  Rigid controls over institutional recipients of these grants should also be implemented to ensure the efficient use of these subsidies. Most importantly, in order to equalize the affordability of higher education, we need to implement incentives for universities to harness their costs. For example, a price ceiling on tuition could be implemented under the caveat that the government would finance the extra expense of more expensive career paths.

Ultimately, higher education finance is a mess, and valuable resources are wasting. In 2013, the government spent $69 billion on financial aid programs such as Pell Grants and tax breaks, while it was calculated that the cost of making public college tuition free was merely $62.6 billion. Recent deficits in the Department have further plateaued the federal influx of grant money, while tuition prices are skyrocketing. These rising net costs demand attention from policy makers.