Aid to Nowhere

Currently, the economic crisis is crunching students across the U.S. as they face a crisis: should they go into debt to get a four-year college degree and in the process receive federal student aid? As college tuition is continuing to rise, this is an increasingly tougher academic climate for most students.

“Federal student financial assistance programs are costly, inefficient, byzantine and fail to serve their desired objectives,” Ohio University economist Richard Vedder claimed at a Hillsdale College conference in May. “In a word, they are dysfunctional, among the worst of many bad federal programs.”

The first primary argument of federal student aid programs argue that there is a positive spillover effect, or that as more people go to college to receive higher education, it will help spur economic growth with a more informed and capable working class. “The alleged positive spillover effects of sending more and more Americans to college are very difficult to measure,” Vedder averred. “And as the late Milton Friedman suggested to me shortly before his death, they may be more than offset by negative spillover effects.”

Another argument of federal student aid proponents consists of bridging the income inequality gap. Over the past 40 years, income equality has not increased with more Americans obtaining a higher education. In fact, income equality has decreased over this time period. It also does not help that capital markets and financial institutions do not give educational loans, solely focusing on credit cards and cars when this is a possible market for their services.

A saddening statistic is that Pell Grants doubled between 2007 and 2010, and are now becoming more of a “middle class entitlement.” These programs have grown from 8-10% over the past 2 years and have led to a massive increase in student debt (which now exceeds credit card debt). A fact that few Americans know is that student loan debt is held by those with a median age of 33 and 40% of student loan debt is held by those 40 years or older. The politician’s promises of helping the indebted young college student rings hollow here.

Vedder outlines 8 problems with the current federal student aid program:

1. The political process sets the student loan interest rates, which hurts the students and with low interest rates, means too much money is borrowed for college

2. College students pay the same interest rate, even if their future job pay vastly differs, all while colleges receive little or no blowback with defaulting loans

3. These grants have led to “an explosion” in college tuition

4. Federal government has a monopoly on student loans

5. The financial aid form is long and cumbersome, which is how one obtains student loans

6. With increased college enrollment, it leads to more underemployment of college graduates (who were underprepared for college in the first place)

7. Student loan fraud that leads to taxpayers footing the bill

8. Lazy students get better subsidies and loans than hard-working ones

If there is a “reset” button in foreign policy, there is a dire need to have a reset button in federal student financial aid as well. An increasing debt-to-GDP ratio is exacerbated by these loans and defaulting loans, along with other various factors, but these loan programs do not serve the students and taxpayers well.

Spencer Irvine is a research assistant at Accuracy in Academia.

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