According to the Department of Education, 35 percent of dependent students from families making at least $100,000 a year received Federal Stafford Loans in 2008, and 15.6 percent received the “subsidized” variety (where the government pays the interest while the student is in school). Stafford loans account for 82 percent of all federal financial aid lending.
Two theories compete to explain this, and they offer radically different policy prescriptions.
The first explanation holds that college costs are mostly determined by factors over which colleges have little control, such as prevailing faculty salaries. Colleges can do little other than react by setting tuition to cover costs.
If students are having to pay more, then financial aid and state appropriations budgets must be inadequate. The solution is straightforward: The federal government should increase the money available for financial aid.
We think this theory is incorrect. An alternative, which holds that the real problem is out-of-control spending in higher education, provides the better explanation.
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