Against Financial Aid

by Robert VerBruggen


Roger Lott (John Lott’s son) has an interesting argument in The Dartmouth:


Thanks to Dartmouth’s outstanding financial aid program, my family and I pay only a small fraction of the College’s sticker price. While I’m grateful to have been handed the world’s finest undergraduate opportunities at so little personal cost, it’s unsettling to realize that in one year I’m sponging tens of thousands of dollars of other people’s money. As much as I like Dartmouth, I can’t say I value being here enough to justify the massive burden the College is bearing on my behalf. It may be time to make selfish free-riders like myself assume more financial responsibility for their educations.

Dramatic increases in grant-based financial aid have led to widening disparity in the prices students pay to attend Dartmouth. The growth in spending on need-based undergraduate scholarships from about $30 million in 2000-2001 to a projected $80 million in 2011-2012 has led to greater assistance for some, but has presumably contributed to the simultaneous rise in cost of attendance from $33,210 to $55,365. As noble as it is to want to help those with less, the College wouldn’t need to charge students from wealthier backgrounds so exorbitantly if others had to carry more of their own weight.

. . .

Need-based scholarships that discourage financially responsible behavior should be replaced with loans. Students of relatively limited means who will become doctors, lawyers or entrepreneurs ought to be able to repay loans to the College out of their future earnings.

This is similar to something I’ve argued in the past, and more generally, I think the idea of having parents pay for their kids’ education is silly. Not only does it create a third-party-payer problem (the person benefiting from the education isn’t the person paying for it), but it also introduces class disparities (a student with rich parents will have more opportunities than a similar student with poor parents). And then we try to fix the class disparities through government- and university-sponsored financial aid, thus creating another third-party-payer problem and rewarding parents who turn down income opportunities or fail to save (because if you make and save more, your kid loses financial aid).

Why not have all kids pay for their own education, either by taking out traditional loans or by paying a certain percentage of their income until their debt is gone? I can think of lots of advantages and no downsides: Schools and taxpayers wouldn’t have to act as charities; students would think carefully about whether to go to college and what to study, and they’d goof around less, because they’d be the ones paying for it; kids with bad parents would be less dependent on them; class disparities would evaporate, at least in this small sense.