Does federal student aid really help students, or just the schools they attend? It's the schools, free-market economists argue, and they say increases in student aid have helped fuel the sharp tuition increases of the last two decades.
University officials normally make the opposite argument-that cuts in aid force schools to raise the cost of tuition. But as John Hood, president of the John Locke Foundation in Raleigh, N.C., argued back when President Clinton was proposing the Direct Loan Program (see above story), that assertion doesn't match the tuition record.
As Mr. Hood wrote in Reason magazine, tuition fell in real terms during the 1970s when real per-student federal aid fell, and then rose during the 1980s when real per-student federal aid increased. University administrators, Mr. Hood argued, raise prices in order to make families eligible for more aid, which means more money for the university. The result, he claimed, is "... more money for colleges to spend hiring nonteaching staff, building monuments to academic extravagance, and subsidizing college athletics ... "
Students are then faced with the classic "offer you can't refuse." With the government bidding up the price, they have little choice but to accept the grants and subsidized loans.