Student Loans and How Government Subsidization Leads to Rising Tuition

Student Loans and How Government Subsidization Leads to Rising Tuition

Institutions of higher learning have continued to increase the costs beyond attainable means by most of the students. The study revealed that increased students’ loans and government scholarships are the principal reasons why institutions increase the fees levied on their programs. Research 2015 suggests that student loans increase tuition fees by 58 cents at a given typical college, while more substantial impacts when reductions in institutional financial aid are incorporated.

A study by NBER in 2016 explained that adjustments in student loans offered by federal institutions are evident in tuition increases at private nonprofit colleges. Moreover, an analysis conducted in 2014 revealed that the colleges, especially for profit that were legible for federal student aid tuition fees charges, were 78 % more than that of a similar institution but not legible for aid. Therefore, the funding provided to the student was a major contributory factor to the increase in tuition fees.

The federal government offers more student loans and incurs more money on higher education compared to previous expenses on the same item. Colleges often adjust their tuition by raising fees to match increased spending habits. It means that students are less disadvantaged because they are overburden with the debts. There are no justifications to support the institution’s practices of changing the tuition fees as the programs offered are similar to those provided 3 years ago.

When college tuition is subsidized through federal financial aid, students often divert their minds from vocational pieces of training that are less costly to tax payers’ monetary resources. The professional parts of training may grant people opportunities with better paychecks and impact significantly on America’s economy. A recent study revealed that students with vocational training are more preferred to work in manufacturing firms compared to college graduates. The firms offer better perks to such personnel compared to college graduates. The US government should pump more financial resources for vocational training. Ironically, the US government spends quite a considerable chunk of monetary resources to aid in operating colleges, which in turn increases the tuition fees to college students (Vedder 1).

Moreover, over the last 30 years, instances of inflation-adjusted federal aid quadrupled. This increased the student’s debts to a margin above $ 1 trillion marks. This means that student debt has become more than a combination of debt for every American credit card. The student’s debt represents close to two-thirds of the national budget’s shortfalls. The College Board explained that nearly half of all full-time undergraduate students within the public colleges as well as universities depend on the student’s debt. The private nonprofit schools are not left behind as over two-thirds of them have accessed the student’s loans to pay for tuition fees. The institutions argue that the students have more monetary resources; hence, adjusting fees would not have a significant impact (Worstall 1).

The PLUS loans offered to students do not any capped like other students’ loans in terms of interest rates charged. The decision to borrow is left to the parents where they can lend to a maximum of the costs of attendance, which is solely determined by the colleges. The colleges often create an incentive that eventually results in increasing the student’s tuition fees. They understand that the government will follow up on ensuring that all eligible parents access the funds. PLUS loans are designed to take into consideration the lid off of any tuition constraints that other student loan programs impose. Previous experience reveals that students often would seek the PLUS loans provided they have exhausted the different credits to which they had been granted. The tuition fees would always keep on increasing despite the caps put across the US government.

An increase in the subsidies has increased in the price of the college tuition fees. Tertiary education is often perceived as a luxury good; hence, people are willing and desire to make payments in a higher proportion of their income to attain the good. The other aspect is the Baumol effect, which states that the prices of services would become more expensive compared to the manufactures over a given time frame. The costs of labor services would rise over time in comparison with manufactures commodities. This means the loss of acquiring education would increase over the time frame hence increasing the tuition fees.

Some opponents of government providing subsidies to the college educations advocate for the abolition of the subsidies since they instead increase the cost of education. Studies reveal that colleges charge more tuition fees since the government offers incentives hence no need for such grants. However, the government provides aid to college students to ensure that education is more affordable and accessible to all students. The US government should come up with policies that prohibit colleges, whether private or public, from increasing the tuition fees (Cary 1).

Although subsidies offered by the government and students’ loans are meant to make education more affordable to college students rather than the current scenario, the government left the colleagues to determine which prices to charge on college tuition fees, which drastically lead to increased costs and making education very expensive. Consequently, the policy frameworks should be developed to prohibit firms from exorbitantly charging higher tuition fees, whether aids, loans, and subsidies are provided or not. Colleges seeking to adjust prices, either private or public, need to seek written approval from the ministry of education.