Is Financial Aid Actually Harming Students?

Is Financial Aid Harming Students Instead of Helping Them? Ditto Transcripts, LLC

The U.S. Department of Education recently announced that student financial aid levels are at the highest they have been since World War II, which means that more undergraduates rely on financial aid to help fund their education than those who don’t. But while many undergrads rely on these programs to fund their college experience, financial experts have been voicing concerns for years that aid levels simply inflate the cost of education for everyone – both those who receive aid and those who don’t. So is financial aid really harming students instead of helping them?

It is possible that some educational institutions are raising tuition prices right along with aid levels to capture the most amount of financial aid. One of the problems with the aid system experts often point to is the way the government distributes financial aid. Many financial aid programs such as Pell Grants are based on need plus tuition cost, not merit, meaning the lower your family income and the higher tuition rates the more aid you are given. But the way your need is calculated is based on how much your family should be able to pay, there is no check and balance of a supply and demand system. So if your family can afford to pay $10,000/year, and college costs $15,000, aid money would potentially come in at $5,000. But if college is raised to $20,000, aid money would potentially be raised to $10,000. Therein lies the problem.

The cost of education has certainly gone up, but whether directly from financial aid levels or not has not been proven conclusively. Certainty some colleges also raise their tuition to help fund big ticket items – a new chemistry lab or a new parking garage, for instance. And there are also typical yearly increases as prices are adjusted for inflation rates. But institutions also generally raise their prices when there is a higher demand for their services, and the availability of student loans and student aid have both increased demand as those who previously couldn’t afford school now can. So there could also be an indirect relationship between financial aid and tuition costs – the more people can afford college, the higher the demand, the more colleges can charge.

Unfortunately there is no simple answer for this complex issue. Reducing the amount of student aid would ultimately harm the students, but capping tuition raises could also harm them in the long run if institutions had to make cutbacks. The government seems to be acknowledging the problem, but as far as answers on how to solve it none have held up yet. For instance, President Obama has announced proposed changes in federal financial aid that he hoped would make college more affordable, specifically by using a ranking system for each college based on factors like tuition, graduation rates and student loan debt, and using that ranking to determine financial aid. But just like many past proposed financial aid reform plans, critics were quick to decry the program as ineffective and weak. Whatever the answer may be, one thing remains certain – the cost of higher education is rising, and so is the amount of student loan debt.

Ditto Transcripts is a Denver, Colorado-based financial transcription company that provides fast, accurate and reliable transcription services for bankers, financial advisors and planners, insurance companies, money managers and more. Call 720.287.3710 (855.287.3710 toll free) today for a free quote, and ask about our free five-day trial. Visit our website for more information about our financial transcription services.  

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