Richard Vedder devotes his latest Martin Center column to “answering the perennial question” about college.
Last month, Amanda Riley, writing for The Atlantic, asked a good question: why does higher education in the United States cost significantly more than in every other OECD nation except Luxembourg? Related to that: Why have college costs risen sharply over time?
Unfortunately, while the questions Riley raises are compellingly important, the answers she provided are, in my opinion, severely wanting.
She fails to even fleetingly mention one thing unique to American higher education that has been an enormous factor in driving up costs: the federal student financial assistance programs. The money from those programs has provided universities an opportunity to raise fees aggressively, using the proceeds to fund a very costly and unproductive academic arms race, including ultra-posh buildings, climbing walls and lazy rivers, and college sports programs that are out of control both financially and morally.
From roughly 1840 to about 1978, when federal student financial assistance was either non-existent or of modest size, college tuition fees, adjusting for inflation, rose on average about one percent a year. Since 1978, tuition inflation has escalated to about three percent annually.
Careful empirical studies performed both by the New York Federal Reserve Bank and the National Bureau of Economic Research confirm what former Education Secretary William Bennett opined three decades ago: whenever the feds give another dollar of financial aid to students, colleges raise their fees by a majority of that dollar, capturing for themselves what was designed to help students.