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College Aid and the Fiscal Cliff

Written by Gary North on November 9, 2012

The fiscal cliff is real. If Congress gets into gridlock, automatic spending cuts will begin. Whole segments of the economy will be affected. The private sector will get larger. The state sector will not gr0w as fast. It will not shrink, but it will not grow as fast. This is a good thing.

This is scaring the mainstream media, which is an extension of the Establishment. The media are sending a signal to those who are on the dole: “Beware! The supply of government subsidies will slow!”

Here is an example. The warning was issued to all those people who rely on federal government money to finance their children’s college education.

Automatic spending cuts that are set to kick in at year-end — as part of the so-called fiscal cliff — could result in an 8% cut in federal aid. Obama’s aides have said the president plans to move quickly to find common ground with Republicans over the $1.2 trillion in overall cuts.

Let’s hope this happens. The bureaucrats who run the nation’s colleges could use a dose of fiscal reality.

There is more good news. The process of budget-cutting for colleges has already begun.

If they do begin as scheduled, however, cuts would come at a time when federal financial aid is already on the decline. According to a report released last month by the College Board, federal grants totaled $49 billion during the last academic year, down 5% from a year prior, after adjusting for inflation — the first drop after rising for five consecutive years. Federal work study, which allows colleges to create campus-based jobs for students, fell 4% to $972 million, after adjusting for inflation, the first time it’s dropped below the $1 billion mark in at least a decade.

This is not a time for hand-wringing. This is a time for rejoicing. Liberty is being restored. But the educational bureaucrats — “college experts” –  do not see things this way.

And college experts caution that even more cuts could kick in starting next fall. Next year, the Higher Education Act, a major piece of legislation that for decades has helped determine how much college aid — including grants and loans — the federal government provides, is up for reauthorization. If it isn’t renewed next year, there’s an automatic one-year extension of the current rules giving students one more academic year of breathing room before changes kick in.

In other words, the cuts are over a year away. That’s not soon enough for me. But I may be to pessimistic.

But some experts say even the best-case scenario will leave families worse off than this year. That’s largely because no matter what happens to financial aid — even if it stays the same or increases — it won’t keep up with the rate at which tuition is rising, says Mark Kantrowitz, publisher of FinAid.org, which tracks financial aid issues.

The reason subsidies will not keep up with rising tuition is two-fold. First, colleges are part of a cartel that was created and sustained by federal and state licensing agencies. This cartel restricts the supply of the issuing of accredited college degrees. Second, state and federal money drives up demand for college services. So, it’s a case of fixed supply and rising demand. Guess what. Prices go up. Will wonders never cease?

While there’s still time before any of these decisions are made, college advisers say families should prepare for the possibility of less aid by broadening their financial aid search from now.

Better yet, use distance learning to cut total college costs to under $15,000. Starve the bricks-and-mortar side of the campuses. They are not necessary for education.

If you want to find out which federal boondoggles are threatened by the fiscal cliff, click the link.

Continue Reading on www.marketwatch.com

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2 thoughts on “College Aid and the Fiscal Cliff

  1. ACT college admissions tests include English, math, reading and science. Only 25% of applicants were proficient in all 4 subjects … only 40% in 2 subjects. High schools do a terrible job preparing students who want to go to college. In 2007, a college graduate could expect to earn $1.7 million more than a high school graduate. That is sufficient incentive. Taxpayers should not be forced to subsidize their education.

  2. Gloria Wedemeyer says:

    I am 71 and going over the fiscal cliff would be bad for me in my last years, but I don't care. I hope they shut down the government and I could care less, even if I won't have social security or medicare. We survived before when we did not have all these entitlements and we survived. I really don't want to live much longer anyway in this country.

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