The Simple Reason College Tuition Costs Have Exploded

A depressed college student thinking about his student loans

A depressed college student thinking about his student loans | Sean Gallup/Getty Image

College costs are out of control, there’s no denying it. Over the past 30 to 40 years, the price has skyrocketed 1,120%, to the point where higher education is simply unaffordable for many people, and those that do take on the financial burden are now saddled with an average of $35,000 in debt.

Everyone’s aware that it’s happening, yet few have been able to really pinpoint why. There are obviously a huge number of factors to weigh — increased costs for administration, building and expansion expenses, etc. — but the true beating heart of the problem really hasn’t been singled out by a mainstream source. That is, until a recent report from the Federal Reserve Bank of New York.

The Fed’s assessment is that a vicious cycle has taken hold of the education market, and increasing costs are being fueled by an increased demand for loans and student aid. “While one would expect a student aid expansion to benefit its recipients, the subsidized loan expansion could have been to their detriment, on net, because of the sizable and offsetting tuition effect,” the study says.

In a nutshell, what’s happening is that the expansion of federal student loans and aid is causing schools to drive up what they charge in tuition. Why? Because they can, basically. It’s as simple as seeing more money available, and taking the necessary measures to secure it. In all, for every dollar awarded in grants and federally-backed loans, tuition goes up 55 to 65 cents.

“We find that institutions that were most exposed to these aid ahead of the policy changes experienced disproportionate tuition increases around these changes,” researchers write. “We find a passthrough effect of Pell Grants and subsidized loans on sticker price tuition of about 55 and 65 cents on the dollar, respectively.”

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