Our Federal Student Aid System — Worse Than We Thought

The top of the cap of a graduating student is pictured during their graduation ceremony at UC San Diego in San Diego, California, U.S. June 17, 2017. (Mike Blake/Reuters)

Federal intervention into education began in earnest under LBJ and has had terrible consequences at all levels. Student aid for college has succeeded in raising the cost dramatically while lowering the standards just as badly. It is among the greatest blunders the U.S. has ever made.

In today’s Martin Center article, Professor Rich Vedder looks at some recent research on the student aid system and concludes that it is worse than we realized. Specifically, it has morphed into a massive subsidy for people who are well-off and will become more so. He writes: “The most striking new revelation from the New York Federal Reserve Bank study is how much the student loan program appears to be an entitlement for presumably relatively affluent individuals (assuming borrowers in high-income areas themselves are typical of their neighborhoods). I have often wondered why we give loans of, say $200,000 to students attending Duke Law School who will probably be making very substantial ($150,000 or more) salaries shortly after graduation.”

Vedder is in favor of having the federal government get out of the business of financing higher education altogether. (I agree, and lament that this unconstitutional expansion of federal authority was ever allowed to begin.) But if we can’t get rid of federal student aid entirely, what should we do?

He offers several good ideas: “An alternative second-best strategy would be to downsize federal financial assistance programs, for example, getting rid of PLUS loans whereby parents borrow to support their children’s education, end student tuition tax credits (lowering taxes to parents of students attending college), and put more stringent limits on the number of years and the amounts one can borrow. For example, a lifetime limit of six years borrowing and a maximum amount of $75,000 might be established.”

Vedder would also like to see a change that would make colleges liable in the event that students they purported to educate don’t repay their loans. He suggests that they repay the first $5,000 plus 20 percent of the balance over that amount. Schools would have to rethink their admission policies and academic standards if they knew that they would face a monetary loss for admitting weak students who just coast along to their degrees.

George Leef is the the director of editorial content at the James G. Martin Center for Academic Renewal.

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