What if the federal government stopped handing out students loans, got rid of higher education tax credits and eliminated Pell Grants for needy students? And instead, it gave money to states that pledged to put up some of their own funds to hold down the cost of college for students.
That’s the premise of a new paper from the New America Foundation, a Washington-based think tank calling for an end to the federal voucher system used to make college affordable. Policy analysts at the foundation argue that the existing financial aid system provides minimal incentives for state investment or for colleges to curb expenses, and is irreparably broken.
“The system creates an incentive for colleges to increase prices to capture the federal subsidy. This is particularly true with loans,” said Iris Palmer, senior policy analyst at New America. “It also allows colleges to take federal aid on one end for low-income students and re-attribute their institutional aid to higher-income students they’re trying to recruit. And it has encouraged states to shift their funding to other places because the federal government fills in some of the state disinvestment.”