How the US government may be partly to blame for skyrocketing tuition

Federal student loans may be causing college tuition to spike, according to a recent paper from the Federal Reserve Bank of New York.

Federal student loan limits changed in a few different ways from 2007-2011 that allowed students to borrow more money from the government, the New York Fed paper points out.

Average tuition also nearly doubled during this period, going from about $US6,950 in 2001 to more than $US10,000 in 2012 (prices given by the New York Fed in 2012 dollars).

The paper found that schools that were more reliant on federal loan subsidies disproportionately increased their sticker price tuition during this period.

Specifically, the New York Fed paper looked at three different types of student loans:

  • Subsidized loans, for students who demonstrate financial need
  • Unsubsidized loans, for students who don’t demonstrate financial need (these loans are more expensive than subsidized loans)
  • Pell Grants, which are based on financial need and do not have to be repaid

The New York Fed paper states that Pell Grants and subsidized loans raise “sticker price tuition of about 55 and 65 cents on the dollar, respectively.” Additionally according to the paper, unsubsidized loans raise tuition by 30%.

Below, you can see how tuition has risen as more federal student aid has become available:

Check out the full New York Fed paper here >>

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