The Examiner: Education Department financial aid rules may backfire on students

The Examiner

April 19, 2011
By Hans Bader - Special To The Examiner

The Education Department tried to restrict the use of financial aid by for-profit colleges by barring them from getting more than 90 percent of their funding from federal financial-aid programs.

How did they respond? By raising tuition, so that at least 10 percent of their students’ education would not be paid for by federal loans and grants. Thus, financial aid actually encouraged them to increase tuition, radically increasing their students' future indebtedness.

The net result was to “create a perverse, no-win ‘Catch-22’ that could prevent low-income students from attending college,” by encouraging such colleges to raise tuition to outstrip rising financial aid by at least ten percent.

Over the past three years, the federal government has increased student aid by more than 40 percent. As a result, students are entitled to as much as $15,000 in grants and loans during their first year of study. The result has been to drive up tuition at some colleges by even higher percentages.

For example, Corinthian College has diploma programs in health care and other fields that can be completed in a year or less. Until earlier this year, many of those programs had a total cost of about $15,000, which meant that federal grants and loans could cover nearly 100 percent of their cost. In response to the Education Department’s rule, the college raised tuition to comply with the 90/10 rule.

As a result of increasing federal financial aid, colleges have been able to increase tuition faster than inflation, year after year, secure in the knowledge that they can rake in ever-rising government subsidies and skyrocketing tuition.  College students are learning less and less even as higher education spending explodes.

Students have little choice but to pay inflated tuition bills into the education industrial-complex, as they vie with each other for scarce entry-level jobs by acquiring ever more degrees that show their ability to jump through hoops and master difficult (but largely useless) skills. The net result is an educational arms race in which people compete to see who can acquire the most paper credentials. There are now 8,000 waiters and 5,057 janitors with PhD’s or other advanced degrees, and millions of Americans have useless college degrees.

The Education Department recently made college officials' lives more difficult by trying to alter the burden of proof long used by many colleges in sexual harassment cases (despite the lack of any legal basis for doing so), and by seeking to discourage procedures such as cross-examination that safeguard accuracy and due process in campus disciplinary proceedings.

Another recent Education Department rule that is likely to backfire on students is discussed here (the so-called "gainful employment rule").

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