Brutal new research shows how the government ruined higher education

The massive expansion of subsidies did not accomplish any of the goals its proponents promised.

From student debt “cancellation” (i.e. taxpayer-funded bailout) to outright socializing higher education, Democrats increasingly support more government intervention in response to the out-of-control cost of college. But we just got even more evidence that government meddling is what produced this problem in the first place.

A new study examined the expansion of federal loans for graduate education that occurred in 2006, which basically removed the limits and let many students borrow up to the full cost of attending. It compares the trajectory of different students who were and weren’t affected by this change to analyze the impact it had. The results are shocking.

The massive expansion of subsidies did not accomplish any of the goals its proponents promised. It had “no effect” on graduate enrollment, meaning it did not enable more students to attend graduate school (suggesting that the previous caps weren’t prohibitive for many people). It also had “no effect” on the “racial and gender composition” of the graduate student body, despite promises that expanded subsidies would enable more minorities to attend grad school. Further, it had “no effects” on either student graduation rates or their future earnings.

That’s right: The benefits were literally nonexistent. Meanwhile, the costs were quite significant.

The study further confirmed something known as the “Bennett Hypothesis”: the idea, supported by Econ 101, that when the government subsidizies higher education, it leads to an increase in prices. The theory is simple: When you artificially inflate people’s ability to pay for something, demand for it increases, which means higher prices under basic supply-and-demand theory. The study concluded that the schools most affected by the policy “significantly increased program prices.”

In typical academic understatement, the authors conclude, “Our results raise important questions about the utility of essentially uncapped government-backed loans for graduate school.”

You don’t say.

Yet this logic doesn’t just apply to graduate school. Other research has shown the same effect for the massive federal loan programs we give out to subsidize undergraduate education, too. And the timeline of when college began to increase in cost corresponds closely with the expansion of federal subsidies.

“Back in the 1960s, you didn’t have a federal student loan program, you didn’t have a Pell Grant program,” higher education researcher Preston Cooper told me in a recent interview. “As federal aid has expanded, over the years, colleges have been able to capture some of that money by raising their prices.”

We’re not talking about chump change, either. Research published by the New York Federal Reserve found that every dollar given out in federal subsidized loans led to a 60-cent increase in tuition prices.

While the extent of the student debt crisis is often exaggerated, we absolutely do have a student loan bubble and a real problem with how unaffordable higher education has become. But if we want to solve that problem, we’ve got to undo the countless ways the government has already messed up the market — not repeat the same failed approach.

This column originally appeared in the Washington Examiner.

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Brad Polumbo
Brad Polumbo
Brad Polumbo is a libertarian-conservative journalist and co-founder of Based Politics. His work has been cited by top lawmakers such as Senator Rand Paul, Senator Ted Cruz, Senator Pat Toomey, Congresswoman Nancy Mace, Congressman Thomas Massie, and former UN Ambassador Nikki Haley, as well as by prominent media personalities such as Jordan Peterson, Sean Hannity, Dave Rubin, Ben Shapiro, and Mark Levin. Brad has also testified before the US Senate, appeared on Fox News and Fox Business, and written for publications such as USA Today, National Review, Newsweek, and the Daily Beast. He hosts the Breaking Boundaries podcast and has a bachelor’s degree in economics from the University of Massachusetts Amherst.