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Do Student Loans Cause Higher Tuition?

is there a relationship between readily available student loan funds and higher college tuitions? 

| BY Kent McDill

The luxury of a college education in the United States can be expensive, especially if the student wants to attend a major public or private university. A four-year degree can cost six figures easy.

Most students can offset the costs of education by taking out loans offered either publicly through the United States government or privately through banks and other lenders.

Some observers, however, believe the cost of a college education and the availability of loans is a sort of self-fulfilling prophecy. They believe that the abundance of student aid funds through loans allows colleges and universities to charge more for tuition.

The rising costs of college education is a topic that prompts several different responses. Professor salaries, a continuous effort to update on-campus facilities, and all other costs related to running a university are blamed for the annual increases in tuition and other fees.

But there is now research that indicates the availability of student aid funds is what has led to tuition increases.

According to a story first published by Higher Ed, the National Bureau of Economic Research has issued a research paper that places the blame for rising college costs directly on student aid accounts. The NBER is claiming the more money made available to students, the more colleges can charge for operating the college.

“You have got to somehow tie aid to lowered tuition if you want to give money to students,’’ said research co-author Grey Gordon, an assistant professor at Indiana University. “You have to somehow structure it so colleges cannot just increase tuition and capture that money.”

The research is based on a hypothetical college, which itself was based on data received from private and public non-profit colleges. However, the data proved most strongly when it looked at for-profit colleges that participate in federal aid programs. Their tuition rates are 78 percent higher than for-profit colleges that do not accept federal aid.

There is an argument against the suggestion that student aid raises tuition, although the argument does say a student’s ability to pay bumps up college costs. According to David Feldman, an economics professor at the College of William and Mary and author of the book Why Does College Cost So Much?, a college sets its tuition price based on what its wealthiest students can pay.

The third possibility to explain the rise in college tuition costs is that state support for education has dropped or ben completely withdrawn in some states over recent years. According to some experts, students are making up the difference for what states no longer provide. According to John Barnshaw, senior higher education researcher at the American Association of University Professors, states that invest more in higher education see lower tuition prices at their public and private universities.

The NBER research paper says colleges can make up funding decreases from the state by increases in athletic program fees and endowment increases.

About the Author

Kent McDill

Kent McDill is a staff writer for Millionaire Corner. McDill spent 30 years as a sports writer, working for United Press International and the Daily Herald of Arlington Heights, Ill. From 1988-1999, he covered the Chicago Bulls for the Daily Herald, traveling with them every day through the nine-month season. He also covered the Bulls for UPI from 1985-88, and currently covers the team for He has written two books on the Bulls, including the new title “100 Things Bulls Fans Should Know And Do Before They Die’, published by Triumph Books. In August 2013, his new book “100 Things Bears Fans Should Know And Do Before They Die” gets published.

In 2008, he resigned from the Herald and became a freelance writer. The Herald hired him to write business features and speeches for the Daily Herald Business Conferences and Awards presentations.

McDill also writes a monthly parenting column for the Herald’s Suburban Parent magazine.

McDill is the father of four children, and an active fan of soccer, Jimmy  Buffett and all things Disney.