One of the most wasteful programs funded by the State of Texas is the Tuition Equalization Grant Program which forces taxpayers to subsidize the education of students who attend a more expensive private school.
Under this program, Texas students’ grades or other metrics are not even considered. Instead, grants are only awarded to those with financial need who plan to attend a private, non-profit college or university in Texas at which they would be “required to pay more tuition than they would pay to attend a public institution.”
According to the Texas Higher Education Coordinating Board’s “College for All Texans”:
“For the 2018-19 academic year, the program maximum is $3,364. However, undergraduate students with exceptional need (those whose Expected Family Contribution (EFC) is less than or equal to $1,000) may receive awards of up to $5,046. Awards may not exceed the student’s financial need or the amount of tuition the student is paying in excess of what he or she would pay at a public institution.”
Though on the surface it may seem like a beneficial program, deeper review reveals it to be merely taxpayer subsidization of high-cost schools. The subsidy not only fails to make them more affordable for low-income students but instead incentivizes private schools to increase their tuition costs.
The principle here is the same as those with federal student loans. When the schools know that subsidized, readily available loans exist, they are free to increase their prices by whatever amount is available without receiving any pushback.
Former Secretary of Education Bill Bennett put forth this idea in his famous Bennet Hypothesis, which states that the more financial aid is available to a student, the more they will be willing (and able) to spend on tuition.
He said the following in a 1987 op-ed for the New York Times:
“If anything, increases in financial aid in recent years have enabled colleges and universities blithely to raise their tuitions, confident that Federal loan subsidies would help cushion the increase. In 1978, subsidies became available to a greatly expanded number of students. In 1980, college tuitions began rising year after year at a rate that exceeded inflation. Federal student aid policies do not cause college price inflation, but there is little doubt that they help make it possible.”
A review of federal student loan programs shows there is concrete evidence to support this theory.
According to the James G. Martin Center for Academic Renewal, “federal student aid increases university tuition rates, perhaps by as much as 60 cents on the dollar.” Similarly, the Federal Reserve Bank of New York found that for every dollar in subsidized loans, tuition increased by 65 cents.
Though the federal government is largely to blame for the issue of spiraling education costs, Texas should not be making things worse.
During the last legislative session, State Rep. Tony Tinderholt (R–Arlington) had an amendment to the budget that sought to reduce the amount of money given to the program by one third, but was unsuccessful. This session, the Legislature will have another chance to lead by example and defund the Tuition Equalization Grant Program and other need-based financial aid programs this session.