Study: Student Loans Raise Tuition Prices

If you think government-subsidized student loans are to help students, you are confused.

Awhile back I wrote on another topic:

Here is a phrase I suggest you memorize for future political analysis: “The purpose of NASA is not to explore Mars but the purpose of Mars is to fund NASA.” Whenever you wonder why something like public education or welfare doesn’t work, just repeat that slogan to yourself. It will allow you to understand two things:

  1. You are reading the “plan” backwards.
  2. Everything works exactly like the real decision-makers want it to work.

So here is a new instance of how that principle works: student loans. Ironically, it was reported by the New York Federal Reserve. According to the Washington Examiner, “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.

Notice how perverse all this is for the students. They are not simply given the money. They are lured into borrowing it. So student debt loads go up with the price of tuition.

Nothing is said about college textbooks, but their prices are also incredibly high. All of this is due to these government-subsidized loans.

The government could send tuition prices through the floor almost immediately by killing all government loan programs. But it won’t do so because its real objective is to provide money for the “higher education” industry.