Why Higher Federal-Subsidized Student Loans Are Actually Bad News for College Students
The student loan crisis has hit a boiling point — as the U.S. reaches nearly $68 billion worth of student loan debt, even Congress realizes that the student loan crisis needs to be addressed.
But has the government actually been making the situation worse by providing subsidized loans to students?
According to a new paper published by the New York Federal Reserve, it’s possible that college tuition rates have risen so quickly because more federal-backed loans have been handed out.
According to The Fiscal Times and Forbes, researchers carefully analyzed how tuition rates interact with financial aid rates for college students across the country, using three different types of financial aid: Pell Grants, which are federal-subsidized grants awarded to low-income students and which do not need to be repaid; unsubsidized loans for low-income and middle-class families; and unsubsidized loans open to all students, but which come with high interest rates.
According to the findings, for every $1 that Pell Grants were increased for students, college tuition rates also increased by an average of 55 cents — meaning that students are actually only saving 45 cents for each Pell Grant dollar they’re awarded.
As Forbes reported, colleges are actually getting a pretty good deal; since only a select group of students will be receiving Pell Grants in any given year — but the tuition increase is across the board — a college will rake in that extra 55 cents from students’ pockets if they don’t have a Pell Grant to subsidize the cost.
It’s possible that this correlation is the reason behind such a steep rise in college tuition rates over the past decade, but as TIME noted, this research paper offers just that: a correlation.
The data fails to prove causation — i.e., whether higher Pell Grant amounts caused colleges to raise tuition, whether higher tuition rates have caused Pell Grants to increase, or whether the data is just a coincidence that happens to correlate but doesn’t connect.
Even if this research paper doesn’t prove a viable connection, one thing is clear: getting an education simply costs too much. When the average public college tuition cost just over $9,000 for the 2014-2015 academic year and private universities averaged $31,000, even students coming from middle-class families often find it difficult to afford a college degree.