“How Not to Help the Poor: The Lesson of Soaring College Prices”

America’s higher education system has become a massive lab experiment, the results of which suggest that means testing social programs can ultimately hurt the very people it is meant to protect.

In the past, almost all public universities were heavily subsidized by state taxpayers, which kept tuition low for everyone. In recent years, however, legislatures have cut support even as the pressure to spend — often on new buildings and other “amenities” — has grown and become baked into the system. As a result, universities have ended up strapped for cash.

In response, many schools have increased their “sticker prices” — the tuition they advertise to the public — while offering many students discounts through financial aid packages. Affluent undergraduates pay the full cost of their educations, while lower-income students receive aid and pay a much lower final net price. This is called the “high-tuition, high-aid model,” and it is essentially a means-tested program. Some higher ed experts have praised this shift, arguing that it would help low-income students by decreasing their tuition.

Unfortunately, this argument has not held up in practice.

Reality: High Tuition + High Aid = Higher Prices for All
As more schools have adopted the high-tuition, high-aid model, prices have gone up for low-income and high-income students alike. The reason is simple: Tuition is going up faster than aid. In the end, low-income students — as well as middle- and upper-income students — face much better prices at schools that keep total price low across the board. As Edward St. John and Douglas Priest wrote a few years ago in Inside Higher Ed, “The reality of high-tution/high-aid did not match the vision advocated by progressives.”

One reason that the high-tuition, high-aid model isn’t working is that schools are not using the increased revenue to pay for more aid. On average, according to Andrew Gillen of Education Sector, only 60 percent of the increased revenue from a higher sticker price is recycled back to aid. A mere 3% of schools surveyed increased aid by as much as they increased tuition. The schools that do increase aid often target the aid at particularly desirable – and often wealthy – students to try to lure them onto campus. Studies show that the money for this “merit aid” mostly benefits the affluent and has come at the expense of money for the need-based aid that is essential to making the high-tuition, high-aid model work as intended.In short, financial aid for the poor has become a poor program because the money gets used elsewhere.

from  The Atlantic

What does this mean?

  • We need to rely less on ideology – and do more work on modelling probable outcomes, impact analyses, cost/benefit projections, anything that will give us some idea in advance of what’s likely to go wrong, so that things can be fixed before people get hurt, rather than after
  • See this post. Also this post
  • We need some sort of feedback mechanism – some sort of procedure for checking back on projects, making sure everything is working the way it’s supposed to
  • We should probably spend more time questioning when it’s appropriate to treat education as a public good, when it’s appropriate to treat college students as a locked-in market (subject to inflated prices), and whether both views are really capable of existing simultaneously

Also from The Atlantic (different article):

But it’s certainly not as if there aren’t enough smart, poor students to fill up classrooms. As economists Caroline Hoxby and Christopher Avery have shown, about 39 percent of America’s high-achieving students are from the country’s poorest 50 percent of students. These are teenagers who manage an A- average in school and finish among the 10 percent of SAT or ACT takers. Most of them never even apply to a selective college, which would include schools ranging from the “very competitive” category to the “most competitive” category.

If the wealthiest schools in the country wanted more economic diversity, they could have it.