NY Fed: Federal aid drives escalating college costs

[Pointedstick]

http://www.foxnews.com/politics/2015/07 ... deral-aid/

A new explosive study has found a direct link between expanded federal aid and rising tuition rates among the nation’s colleges and universities, re-energizing a debate over the escalating cost of post-secondary education for millions of Americans.

[...]

The study, conducted by researchers for the Federal Reserve Bank of New York, found that for every new dollar made available in federally subsidized student loans, schools – particularly expensive, private four-year institutions – rose their rates by 65 cents.

Furthermore, for every dollar increased for federal Pell Grants and unsubsidized loans, schools rose their rates 55 cents.

“While one would expect this (aid) expansion to improve the recipients’ welfare, for example, through lower interest payments and a relaxation of borrowing constraints, the subsidized loan expansion possibly resulted in lower welfare because of the sizable and offsetting tuition effect,” wrote the study’s authors, Davis Lucca and Karen Shen of the New York Fed, and Taylor Nadauld of Brigham Young University.

[Tyler]

[sarcasm]

But student loan debt is good debt.  More must be better, right?

[/sarcasm]

[Libertarian666]

I'm shocked that freely lending immense amounts of money to buy something makes the price of that thing go up! I wonder why no one has ever noticed that before?

[coinstar]

Anyone else find it FUNNY that the FED of all people did this study?? Wonder if they are concerned with how much money exists relative to underlying capital goods/services and knows we are DUE for hyperinflation if things don't settle down?

[moda0306]

Anyone else find it FUNNY that the FED of all people did this study?? Wonder if they are concerned with how much money exists relative to underlying capital goods/services and knows we are DUE for hyperinflation if things don't settle down?

I'm thinking more-so the opposite. If anything, the inflation has already occurred, and it's embedded in our education costs and is unsustainable. If anything, the paying off of that massive amount of debt by future consumers will have a net deflationary effect as they aren't able to spend that money to consume.

[Pointedstick]

Anyone else find it FUNNY that the FED of all people did this study?? Wonder if they are concerned with how much money exists relative to underlying capital goods/services and knows we are DUE for hyperinflation if things don't settle down?

I'm thinking more-so the opposite. If anything, the inflation has already occurred, and it's embedded in our education costs and is unsustainable. If anything, the paying off of that massive amount of debt by future consumers will have a net deflationary effect as they aren't able to spend that money to consume.

And that is in fact what is already happening. The huge college tuition increase is the inflation.

[moda0306]

Anyone else find it FUNNY that the FED of all people did this study?? Wonder if they are concerned with how much money exists relative to underlying capital goods/services and knows we are DUE for hyperinflation if things don't settle down?

I'm thinking more-so the opposite. If anything, the inflation has already occurred, and it's embedded in our education costs and is unsustainable. If anything, the paying off of that massive amount of debt by future consumers will have a net deflationary effect as they aren't able to spend that money to consume.

And that is in fact what is already happening. The huge college tuition increase is the inflation.

Yes. And like inflation in certain microeconomic areas driven by debt, I think it has a high likelihood of popping.

[Pointedstick]

In fact, looking more broadly: the three primary sectors of the economy that have experienced major inflation over the past few decades are college tuition, health care, and housing--all driven by bad government policies. Remove those and I suspect the average rate of inflation drops to near zero, if not negative territory.

[barrett]

In fact, looking more broadly: the three primary sectors of the economy that have experienced major inflation over the past few decades are college tuition, health care, and housing--all driven by bad government policies. Remove those and I suspect the average rate of inflation drops to near zero, if not negative territory.

My insurance premiums went up about 90% between 2008 and 2013. The housing inflation would be a plus because we can sell our place and live somewhere cheaper, but we do still have to live somewhere. The college inflation is merely forcing our family to move assets to places we don't necessarily want them to be.

[Pointedstick]

The housing inflation would be a plus because we can sell our place and live somewhere cheaper, but we do still have to live somewhere.

Exactly. You're still affected because if you sell your house and buy another one in the same regional market, your options are themselves similarly more expensive. The benefit of your house's market value rising is largely illusory IMHO. To tap into that as an investment, you can't be living in it.

[MachineGhost]

Anyone else find it FUNNY that the FED of all people did this study?? Wonder if they are concerned with how much money exists relative to underlying capital goods/services and knows we are DUE for hyperinflation if things don't settle down?

The Fed doesn't print money for the real economy (other than requesting a small amount of currency from the Treasury).  It's internal bookeeping credits and never leaves the Reserve System.  Don't conflate monetary policy with fiscal policy.  Congress is who creates money for the real economy (and savings via deficit spending).