WSJ Suggests Federal Aid Is To Blame For Increasing Tuition Costs

WSJ: Universities Have Pocketed “Subsidies By Increasing Tuition After Every Expansion Of Federal Support.” In a September 30 editorial, The Wall Street Journal criticized proposed increases in the federal Pell Grant Program , claiming it will not have “anything to do with making it easier to afford college.” From The Wall Street Journal:

To preserve Team Obama's priority of maintaining a maximum Pell grant of $5,550 per year and doubling the total annual funding to $36 billion since President Obama took office, Democrats recently decided to make student-loan borrowers pay interest on their loans for their first six months out of college. Washington used to give the youngsters an interest-free grace period. Taxpayers might cheer this change if the money wasn't simply being transferred to another form of education subsidy. But it seems almost certain to raise default rates as it puts recent grads under increased financial pressure.

None of these programs has anything to do with making it easier to afford college. Universities have been efficient in pocketing the subsidies by increasing tuition after every expansion of federal support. That's why education is a rare industry where prices have risen even faster than health-care costs. [The Wall Street Journal, 9/30/11]

But Experts Have Disputed The Claim That Increases In The Pell Grant Program Has Driven Up Education Costs

College Board Senior Analyst: “There Is No Convincing Evidence That Increases In Pell Grants Feed Tuition Increases.” In a post on The New York Times' Room for Debate blog, Sandy Baum, a senior policy analyst at the College Board wrote:

The average size of a Pell Grant has increased over time, but it is this increase in use of the program that explains most of the increase in expenditures. Because college prices have risen more rapidly than grant levels, Pell covers a lower proportion of total college expenses than it did a decade ago.

There are a number of explanations for rising college prices, with declining state appropriations per student high on the list for public colleges and universities. Difficulties in improving efficiency and productivity, expansions in the services offered to students, rising costs of technology, and increases in institutional financial aid budgets are also major factors. There is no convincing evidence that increases in Pell Grants feed tuition increases in either public or private not-for-profit institutions.

Baum included this chart demonstrating the total cost of college outpacing the rise in maximum amount awarded by Pell Grants:

[The New York Times, 2/3/10]

Callan: Pell “Grants Do Not Cause Higher Tuition.” In the same New York Times blog, Patrick Callan, the president of the National Center for Public Policy and Higher Education, wrote:

Federal Pell grants have served to partially insulate low income college students from three decades of escalating tuition increases. With the current maximum grant level of $5,350 and most students not eligible, there is little evidence that these means-tested grants are major factors in the tuition setting decisions of most colleges.

Today the grants cover a smaller portion of college tuition than they did 25 years ago; if colleges had calibrated tuition increases to Pell Grants, steep tuition increases would not have been repeatedly imposed in the years when the grant levels were not raised and tuition would be considerably lower today.

[...]

As long as tuition continues to grow faster than family income and other prices in the economy and faster than Pell grant levels, American students and families will continue to lose ground in college affordability. Pell Grants are a critical part of the safety net that helps many low income Americans enroll in college. These grants do not cause higher tuition, but runaway tuition undermines their effectiveness in supporting access for low income students. [The New York Times, 2/3/10]

New America Foundation: “The Purchasing Power Of The Pell Grant Has Decreased Over The Past 30 Years As The Price Of College Has Risen.” A July 12 analysis of federal educational aid by the New America Foundation showed that " the purchasing power of the Pell Grant has decreased over the past 30 years as the price of college has risen." From the New America Foundation:

In fiscal year 1976, the first year that the Pell Grant program was fully funded at its authorized level, the maximum Pell Grant was $1,400 and covered 72 percent of the cost of attendance at a typical four-year public college. Despite regular increases in funding and grant levels, the purchasing power of the Pell Grant has decreased over the past 30 years as the price of college has risen. In the 2009-10 school year, the maximum Pell Grant covered 36 percent of the cost of attendance at a typical four-year public college.

The analysis included a chart showing the decrease in the percentage of tuition covered by the Pell grant program since 1976:

[New America Foundation, 7/12/11]