Are Subsidized Student Loans to Blame for College Tuition Hikes?
With record levels of student loan debt and college tuition increases, a lot of people are trying to figure out why it costs so much to get a degree that most people agree is necessary for success in today’s job market. It’s natural for prices to increase as time goes by, but tuition has been rising more dramatically than natural inflation since 1980.
Why is this happening?
Some people are starting to argue that subsidized student loans are contributing to the tuition hikes because colleges have such easy access to government money. In fact, a New York Fed study showed that expanding federal aid increases tuition, most notably with subsidized loans at private colleges. Since colleges are guaranteed up-front tuition in full, there’s no barrier to how much they can charge. Even if students are not able to repay the loans later.
Based on this analysis, the solution would entail decreasing availability to federal loans and grants so colleges would lower their tuition to attract more students. One way to do that may be to set caps on how many loans a student or parent can take out — there are caps in place currently for subsidized loans, but not for PLUS loans that are available for parents and graduate students in unlimited amounts. Another way may be to use credit checks as a basis for whether to loan to parents or not.
The solution Trump’s budget proposes is to eliminate subsidized loans, which, according to the New York Fed study, are the loans increasing tuition the most. While that move is being praised by some, others are worried that eliminating subsidized loans will make college look less accessible to low-income families.
For many low-income families researching college costs, emotional responses to price tags — even if they may not include discounts or institutional grants — can be enough to scare them away from college altogether.
It’s important to remember that if subsidized loans are eliminated, students will still have access to enough unsubsidized loans to cover tuition costs. Also built into Trump’s proposed budget are changes to the income-based repayment plans — the affordable payment option — that would grant forgiveness after 15 years, down from the current 20 years. It looks like for the foreseeable future, students will still have access to higher education funding.
Need help paying for your student loans?
Let Ameritech Financial pave the way towards financial freedom.Learn More