U.S. House looks at link in financial aid, higher tuition

Cati Vanden Breul

Increasing the amount of federal financial aid available to college students might cause tuition inflation, an economist said during a U.S. House committee hearing last week.

The hearing explored how federal financial aid programs affect tuition prices and was part of the discussion leading up to the renewal of the Higher Education Act.

“The Higher Education Act is about expanding student access to higher education, and a major concern brought forward by students, familes and the public is rapidly rising student tuition,” said Alexa Marrero, Committee on Education and the Workforce press secretary.

Despite increases in federal student aid, she said, high tuition rates continue to be a problem for many students.

Richard Vedder, an economics professor at Ohio University and a witness at the hearing, said higher financial aid spending by the government gives colleges the opportunity to increase their prices.

“Universities raise tuition a lot because they can get away with it,” Vedder said during his testimony to committee members.

Financial aid increases students’ ability to pay for college, which causes greater demand for a college education and, consequently, higher tuition prices, he said.

“When the federal government increases subsidized student loans, gives a Pell Grant or grants a tuition tax credit, it increases the number of students wishing to attend college at any given tuition fee,” Vedder said.

To end the cycle, the government should lower spending on financial aid programs, he said.

“In the short run, there will be a rise in financial pain to college students, but in the long run, you will help break the vicious cycle of rising fees followed by rising loans, grants and now tuition tax credits,” Vedder said.

But Donald Heller, a senior research associate at the Center for the Study of Higher Education at Penn State University and a witness at the hearing, argued increased financial aid is not causing inflated tuition prices.

The maximum Pell Grant award has increased only $300 since 2001, and there has been no increase in the borrowing limits for the federal student loan programs, but tuition prices have increased 36 percent at public four-year institutions, Heller said.

As state funding for higher education has decreased, colleges have been forced to increase tuition prices, he said.

“If (a state’s legislature) gives less money, then tuition is going to go up more, and if it gives more, tuition will go up less,” Heller said.

Kris Wright, the University of Minnesota’s Office of Student Finance director, said universities rely on state funding for support.

“Particularly when it comes to public institutions, so much depends on state-level support,” Wright said.

Decreasing state support and a double-digit increase in the cost of the University of Minnesta’s health-care plan has affected the institution’s tuition prices, she said.

“As health-care costs rise above the level of inflation, the only way to counteract that is with research funds, tuition fees or state funds,” Wright said.

If the government were to cut back on financial aid programs to lower college costs, low-income students would suffer the most, she said.

“It would decrease access to college but not tuition,” Wright said.

But Alex Newman, a University of Minnesota sophomore and Students for a Conservative Voice officer, said colleges would over time respond to the decrease in financial aid funds.

“It might not happen immediately, but when less students were able to afford college, universities would realize they need to lower their prices to get students to their college,” Newman said.

But it must be done slowly, he said.

“If they do it drastically, there would be a real problem,” he said.

Some U.S. House Democrats said the amount of federal financial aid needs to increase now.

“Those who question increasing aid are shortchanging needy students who want to go to college,” said Rep. Dale Kildee, D-Mich.

Rep. Betty McCollum, D-Minn., said Congress should help struggling students pay for college but Republicans have failed to reauthorize the Higher Education Act for three years.

“This hearing was another example of how Republicans are out of touch with hard-working families and students,” McCollum said.

But Marrero said the reauthorization of the Higher Education Act is expected for this year.

Republicans introduced the College Access and Opportunity Act in May to reform the current legislation.