NEED-BASED financial aid is a policy that receives support from across a wide range of political perspectives. Only the most extreme and narrow ideologies, insulated by an artificial set of assumptions about human behavior and the nature of the good society, can rationally oppose the policy. To properly analyze and evaluate the policy, we must take a comprehensive look at its effects. To look only through macroeconomic lenses ignores many of the positive individual and social benefits to need-based aid and divorces the debate from the real lives of countless students who receive need-based financial aid.
When complemented by other considerations, the macroeconomic perspective provides a useful analytical and evaluative tool. Need-based financial aid reduces the cost of college and increases the supply of students, which leads to a surplus of college educated laborers. Individuals who earned college degrees may end up in jobs that don't require a college education -- at least on a short term basis. Considering that they could have worked those jobs without spending tens of thousands of dollars on college, their expenditure on college tuition was inefficient.
It becomes a matter of concern to the public because our tax dollars are paying for an investment in human capital that does not provide an equal economic return. A college degree won't increase a truck driver's economic output. But if we look at the concept of efficiency from another perspective, we find that need-based aid actually increases efficiency.
Consider this example: John receives a full tuition need-based grant to a mid-level state school. Keith, a weaker student from a wealthier family, attends the same school, financing it either with his own money or his parents'. John flourishes in college and earns a job commensurate to his education level. Keith struggles and ends up with a job for which he is overqualified.
This may still be inefficient. The way to determine the answer is to find whether the difference between John and Keith's output is greater than the cost of John's education. For in the absence of need-based financial aid, John would have likely remained a blue-collar worker with a greater productive potential. Keith, insulated from John's competition, would have taken John's job and performed at a lower level.
In this scenario, need-based financial aid facilitates a meritocratic allocation of labor. John and Keith both earn the job they deserve according to their achievements in college. Need-based financial aid eliminates a barrier to entry into the labor market, which increases competition and efficiency.
This scenario assumes that the cost of attending college was prohibitive for John. He could, however, take out loans. According to rational choice theory, if John determines that the increased earnings his college degree generates are greater than the cost of his education, he will take out a loan. But to assume that he would decide to take out a loan through a rational economic calculation is unrealistic and founded on a simplistic conception of human behavior.
Even if access to credit on the free market was guaranteed to students by the government
Read More
WILLIAMS: Donald Trump will be a threat to student loan forgiveness
By Ryan Williams | 14 hours agoTo be sure, this is not a problem of the University’s making. Nevertheless, understanding the uncertainty of financial accessibility in education, the University must step up to the plate.
PATEL: Personal development courses support students beyond the gradebook
By Heer Patel | 5 days agoThe University must rethink its approach to education beyond traditional major-specific requirements and mandate personal development courses.
EDITORIAL: Commercialization threatens U.Va.’s educational mission
By Editorial Board | 6 days agoAfter all, measuring the University’s worth in terms of accrued capital, operational efficiency and numerical rankings molds this space into just another cookie-cutter institution.
