By Kathryn Watson | Watchdog.org Virginia Bureau

Many critics argue that the cost to attend colleges and universities is rising, in part, because of financial aid from the government.

ALEXANDRIA — As proud Virginians head off to college this fall, they’ll pay tuitions that are a jaw-dropping three times higher than when their parents went to school.

The forces behind skyrocketing higher-education costs are myriad, but among them is one factor that might surprise students and their parents: Critics say the financial aid that is supposed to help Americans actually has made things worse.

“Once the government starts to subsidize a good or service, the demand goes up, the price rises and you get more political pressure for the government to subsidize it,” said Gary Wolfram, an economics professor at Hillsdale College in Michigan, one of two institutions in the nation that doesn’t accept a penny of federal aid. The other is Grove City College in Pennsylvania. Both are free market-oriented, religious liberal arts schools that pride themselves on institutional independence.

Gary Wolfram

Annual tuition and fees at the commonwealth’s 15 four-year public institutions are way up, from $2,485 in 1979 to $9,534 in 2012. Tack on room and board to today’s tuition and you’re at a hefty $17,883.

And families just can’t keep up.

“If tuition and fee increases continue to significantly outpace the rate of increase for income, affordability and access to public higher education in Virginia may be compromised,” a 2011-12 tuition report by the State Council of Higher Education for Virginia reported. The state agency makes recommendations to legislators and the governor in areas such as budgets and student financial aid as well tracks data

Delegate Tom Rust, R-Herndon, who has served on Gov. Bob McDonnell’s Commission on Higher Education Reform, Innovation and Investment, said he would still “argue that the price of higher education in Virginia is a real value.”

Delegate Tom Rust

“The bottom line is, somebody’s got to pay for this,” he told Watchdog.org Virginia Bureau.

The topic of soaring tuition resurfaced with vigor in Virginia after the University of Virginia’s Board of Visitors suddenly ousted President Teresa Sullivan, citing differences in how to handle rising costs. In-state tuition, fees and room and board rang up just shy of $20,000 at the flagship school between 2010 and 2012, according to SCHEV, placing it among the costliest public institutions in the state.

Experts, educators and lawmakers have offered an assortment of explanations for the soaring costs — from depleted state coffers and growing technological demands to an explosion of illustrious buildings and administrative costs.

But taxpayer-funded student aid isn’t getting much play in the national debate on skyrocketing college costs.

“It appears that the aid doesn’t make college any more affordable,” said Neal McCluskey, associate director of the free-market Cato Institute’s Center for Educational Freedomand the author of reports on federal aid and higher education. “It appears that it’s just eaten by the schools, in which case it’s not necessarily helping the poor.”

Neal McCluskey

Between just 2000 and 2008, federal aid for higher education soared from $10 billion to $30 billion, a Cato Institute study pointed out. And that doesn’t even include an injection of more than $30 billion for research at various schools’ departments, the study noted.

During roughly that same period — 1999 and 2009 — average tuition nationally at public and private four-year schools rose roughly 40 percent, according to the nonprofit research group, the Center for College Affordability. McCluskey and Wolfram attribute much of that increase to federal aid.

Wolfram, who traced federal student aid back even further than the free tuition provided to World War II vets through the G.I. Bill, said today’s skyrocketing tuition is a simple illustration of the economic principle of demand.

“You have something very similar to what went on in health care in that, when the government gives out these benefits, it increases the demand,” said Wolfram. “When it increases the demand, it’s going to drive up the price.”

The theory linking rising student aid and rising tuition costs is synonymous with William Bennett, Ronald Reagan’s secretary of education, who ruffled feathers when he said increases in financial aid have “enabled colleges and universities blithely to raise their tuitions.”

His ideas have seen supportive opinions from U.S. News and World Report, Forbes, the Manhattan Institute for Policy Research Inc. and Bloomberg News. 

That analysis has critics. The American Council on Education and National Association of Independent Colleges and Universities, which has more than 1,000 private institutions, say the link between federal aid and rising tuition is unconvincing at best and a myth at worst.

“The bottom line is that there is no evidence — and certainly no conclusive data — to suggest that federal student aid significantly affects colleges’ prices. None, zero, zip, nada,” wrote Bryan Cook and Terry Hartle of the American Council on Education in a 2012 essay. The council is a Washington, D.C.-based higher education organization established in 1918.

That’s what Dan Hurley, director of state relations and public policy for the American Association of State Colleges and Universities, an organization that works to extend higher education to all citizens, told Watchdog.org Virginia Bureau on Thursday.

Dan Hurley

“Everything I’ve seen out there is in the category of myth. Period,” he said, pinning the main reason for tuition booms on states’ “disinvesting” in primary support.

“The cause and effect (linking federal aid and tuition hikes)… would be essentially impossible to prove,” said Hurley.

McCluskey said he isn’t surprised by the criticism, as universities and higher-ed employees have much to lose if they can’t keep upping tuition.

Looking at raw tuition numbers, Hillsdale doesn’t offer the best case for the theory. Its tuition and fees increased between 1998 and 2008, from $12,680 to $19,090. The national average increase at colleges and universities for roughly the same period was 40 percent.

McCluskey said he wasn’t sure if the Hillsdale or Grove City College models work. One possible explanation for the schools’ roughly equivalent performance with schools that do accept federal financial aid: They still have to compete — for faculty and staff, for instance — with the rest of the nation’s institutions.

To replace federal aid, Wolfram suggested a system of “human capital contracts” proposed by American economist Milton Friedman in which wealthy donors pick promising incoming college students and fund their entire education. Once the student graduates and begins earning an income, that graduate passes along a set proportion of his earnings to the donor over, say, 15 years.

Eventually, the number of students could expand and become like a mutual fund, said Wolfram.  An enterprising person could seek out and package 100 promising students, and investors could contribute to the packaged students, he said.

Any removal of federal aid from the higher education system would have to be gradual, said McCluskey, as families and universities rely on it and make their plans years in advance.

But neither McCluskey nor Wolfram foresees federal aid changing anytime soon as long as the public doesn’t believe federal aid drives tuition hikes.

“It’s very hard to be the politician who says ‘I think we should reduce aid,’” McCluskey said.  “Because immediately — we’ve seen it — they are labeled as somebody who is against education or who doesn’t care about the poor, or all these extremely easy ways to demagogue it for political purposes.”

McCluskey said federal aid probably won’t change until the federal government can’t afford it.

“Then I think you could see it begin to really address debt, and it probably would start to reign in some of these programs and that would cause people to be less willing to pay high prices in higher education,” he said.