In today’s Pope Center piece, Jenna Ashley Robinson discusses FAFSA — the imposing federal form that families must complete if they want any of that government student aid. Tomorrow has been designated “FAFSA Day” in North Carolina.
FAFSA is another of the innumerable illustrations of the law of unintended consequences. Government sets up a program to help certain people (college students in this case) and requires paperwork as a requirement for getting funds. That paperwork, however, tips off sellers that they can line their pockets.
FAFSA does that by enabling college officials to practice price discrimination — they’re able to figure out which students to charge the full price or nearly full price, and which ones to offer significant discounts to. As a result, colleges rake in more tuition than they otherwise would. (We know that much of that money is squandered on the “arms race” to achieve higher prestige, but that’s not a part of the immediate story.)
Some other businesses practice price discrimination. Airlines sell seats to customers they perceive as relatively insensitive to price (such as business travelers) at a higher price than those they perceive as being more price sensitive. Price discrimination isn’t immoral, but the federal government shouldn’t make it easy for colleges to practice it. At a minimum, the feds should stop giving this information to college officials, but I’d rather cut the Gordian Knot and get the federal government out of student aid entirely.