Pressure on College Prices

At a Congressional hearing, debate about whether federal aid drives tuition higher, and warnings for colleges.
April 20, 2005

In a hearing that generated far more heat than light, leaders of a Congressional committee sent a clear signal Tuesday that they plan to keep the pressure on colleges to keep their prices down.

Republican leaders of the House of Representatives Committee on Education and the Workforce gave the session, a step in their process of renewing the Higher Education Act, a provocative title: "College Access: Is Government Part of the Solution, or Part of the Problem?" The committee's hypothesis, as Chairman John A. Boehner (R-Ohio) said in his opening statement, was that "government spending" -- namely the $80 billion in financial aid that the government provides to students each year -- "may be a hidden culprit" in what he called the "hyperinflation" of college prices.

Boehner described what "seems to be a vicious cycle" in which "colleges increase tuition; government responds by increasing spending; and colleges respond by increasing tuition again." The ironic result, he suggested, is that the government's efforts to provide financial aid to ensure access to low- and middle-income students may, by driving prices up, be hurting "the very students and parents they are intended to help."

Richard K. Vedder, an economist at Ohio University, fellow at the American Enterprise Institute, and author of Going Broke by Degree: Why College Costs Too Much, readily played the role of provocateur (if not bomb thrower) at the hearing.

He got off to a fast start: While making his primary argument -- that by increasing the awarding of federal aid, the government "increases demand for education, which pushes up tuition and fees" -- he also suggested that college prices were rising because financial aid funds were "ending up in the hands of administrators who used it in part to promote the good life for themselves." College lobbyists in the audience exchanged nervous glances, and that was just in the first 30 seconds of his testimony.

The Democrats on the committee invited their own expert -- Donald E. Heller, an associate professor at Penn State University's Center for the Study of Higher Education -- who more or less served as a rebuttal witness to Vedder. The two men traded ideas, statistics and gentle barbs as they took largely countervailing views: Vedder that the government should slow or even cut back its financial aid spending to stem the "unintended consequences" of rising tuitions, and Heller that there is "no relationship between either federal or state financial aid and tuition price increases," and that shrinking or eliminating government funds for higher education "would be felt most greatly by this nation's lower- and middle-income students."

While the discussion ranged widely -- touching at various times on such diverse topics as higher education's value to individuals and society and whether for-profit colleges get a fair shake from the federal government and from accreditors -- most of it revolved around the causes of rapidly rising college prices (the fact that tuitions have gone up significantly was a rare point of agreement).  

In Vedder's view, "the big problem is that there is no bottom line" at traditional colleges (unlike at for-profit institutions, which Vedder applauded for providing competition to nonprofit colleges), and therefore few incentives to keep costs low. So when financial aid and other funds flow into college coffers, he said, institutions can add staff, especially on the administrative front, while letting workloads decline, and finance non-essential activities like sports programs and fancy dormitories. "The double digit increase in student financial assistance has contributed mightily to the tuition price explosion, and the solution is to reduce the money that is flowing to institutions and members of their academic communities," he argued.

He proposed that when Congress continues its work on renewing the Higher Education Act this year, it consider measures that would rein in federal spending on financial aid by "targeting a little more than we have who gets these grants."

"Do we have to serve everyone?" he asked, suggesting that Congress "get a little more hard-nosed." Lawmakers should consider lowering income caps on tuition tax credits, or letting them expire altogether. Put "lifetime limits" on students' loan or grant eligibility, so students could not keep getting aid indefinitely. Award Pell Grants based on class rank or restrict them for students who get in disciplinary trouble.

"There are arguments for or against each approach, but what is critical is that some approach be adopted that puts brakes on the growth in student loan expenditures," Vedder said.

Heller challenged Vedder's facts and conclusions. He noted that several major federal studies, including a 2001 report by the Bush administration and Congress's own National Commission on the Cost of Higher Education in 1998, concluded that there was no relationship between the awarding of student aid and tuition increases. The primary drivers of rising college prices, he said, are declining state appropriations for public colleges and economic downturns that affect private college endowments and fund raising.

And "contrary to Professor Vedder's assumption that cutting federal and state aid to higher education will lead to more moderated prices, the research evidence demonstrates that eliminating government support will result in even more rapidly escalating prices," Heller said.

The committee's leaders did not signal whether they would seek to work into the Higher Education Act elements of past legislation that would reward colleges that limited tuition increases or punish those that did not. But Boehner did warn that the committee's review of the Higher Education Act "won't be an easy process, or a comfortable one. Assumptions will be challenged. Myths will be confronted. And some china may have to be broken along the way."

That sound you heard yesterday may have been the first of the china hitting the floor.


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