NR Digital

Subsidized Decline

by Richard Vedder
Federal tuition-support programs harm students, colleges, and the economy

A political storm is brewing in Washington over the consequences of rising college costs, but few politicians are talking about the causes of the problem, particularly since a major perpetrator of it is Washington itself. Using his exquisitely honed rhetorical skills, President Obama panders to his political base by suggesting that the solution to ever-mounting student-loan debt lies in easing repayment terms; Senator Elizabeth Warren proposes lowering interest rates for many past borrowers.

The reality is, however, that the single biggest cause of this financial problem, and a contributor to many other weaknesses in our economy, is the dysfunctional, byzantine system of federal financial assistance for college students. College-aid programs have grown rapidly over the last several decades, with annual federal assistance in the form of grants, loans, tax credits, and work-study now totaling $170 billion a year, compared with about $10 billion (in today’s dollars) in 1970. These programs were designed to make college more affordable for all and to increase the proportion of college graduates coming from lower-income groups. On both counts, they have failed.

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