Why Student Loans And Financial Aid Does More Harm Than Good

So you want to go to college. Great! College degrees are a pretty solid way to get a jump start on a career. College is expensive though – so how can student loans and financial aid possibly be bad and do more harm than good? To understand this, we must first understand where the money is coming from and where the money is going.

Colleges and universities have costs and upkeep such as paying the professors, paying for landscaping, paying infrastructure expenses and so on. So whether the money comes from the students or the government, there has to be money coming into the university one way or another in order for the institution to function. That should be understandable.

Universities also function like businesses as well. They want to make more money so they can afford nice things like a new gym, a revamped student union, better computers, re-paved parking lots, more dormitories etc. So there is, of course, a heavy financial incentive for universities to accrue more income if they want to grow. Most of them do. The bigger the school, the more prestige they are. The more prestige, the more students want to come. The more students want to come, the more choosy they get to be with their admission which leads to a higher rating, which leads to further higher prestige and so on.

But how much money does a university really need? Well of course that depends on how big it already is, how many employees it has and their upkeep. It varies greatly from school to school. Let’s say for instance a University employs 2,000 workers, on a $20 hourly wage while 200 or so professors make $120,000 per year – just for instance. Total, that would make employees at this example university cost about $110 million per year. Wow! That’s a lot, right? Factor in materials, supplies, utilities and other maintenance bills, you can see the total upkeep of this example college or university hovering somewhere around $120-$140 million per year. Well that money has to come from somewhere, right? Of course!

Queue in the students. Let’s say the example university enrolls 21,000 tuition paying students each year. This is where the variable of tuition really comes into play. Right now the average college tuition fee per year hovers around $13,000. (There are variables that can affect the price as well such as the school, whether the student is from out-of-state etc. but you will see the point here shortly). This example university with 21,000 students will earn around $270 million per year.

$270 million per year? When their upkeep is only $140 million per year? Does that mean that the school is banking on over $100 million per year in profit?

Well they’re certainly not just sitting on the money. They’ll often use that money to build nicer things for the school like mentioned before. However, the point is that tuition alone is more than enough to cover the school’s expenses even if they are being very liberal (no pun intended) with their budgets. But it doesn’t stop there. College freshmen straight out of high school tend to think that college is a mandatory next step. In turn, they will gladly accept student loans to pay for their tuition. This is where things get interesting.

Remember how we said that colleges are ultimately looking to expand and how they behave like businesses looking to make as much money as they can? Well consider the fact that they have hundreds of thousands of applicants every year – in essence, students who are willing to take on massive student loans from the government and give all that money to the school in exchange for an education. Who benefits?

Do the students benefit? Well that depends on how they handle themselves after they graduate. If they do really well, they’d be able to pay off their student loans without having to result to minimum wage jobs and protesting for a higher minimum wage. Does the government benefit? Well sure! That’s because they charge interest on these loans to the students. Financial aid and student loans aren’t an investment of the Government. They fully intend on getting their money back, plus more!

The real beneficiary of student loans – are the colleges and universities themselves. Why? Because the colleges and universities know that students will always pay their tuition. It doesn’t matter how high they raise it. Unless something fundamentally changes, students will always take out bigger and bigger loans to pay for their tuition – and the government will always grant them (especially if their family has little to no means of paying it back should things go wrong). Why is tuition so high? Because colleges and universities can get away with it. There’s nothing stopping them from raising their prices higher and higher forever.

Some people think that the answer is for the government to pay the college tuition so the students wouldn’t have to. Well that would certainly benefit students, alleviating the burden of a student loan debt. However, that would do nothing to stop colleges and universities from raising their tuition even higher, ultimately ripping off the government and driving the country into even higher debt. Just imagine – a university charging $100,000 per year. Who pays? The government of course! The government will always pay because we believe in investing in education, right?

Or perhaps there is another way. Maybe there is another way that the government can help with education without giving colleges and universities an opportunity to overcharge, leaving the country and/or students in piles of debt. If there was a cap to how much colleges and universities can charge – something that would imply that college and universities cannot charge more than what would result in a certain percentage of profit. Maybe, maybe not. Maybe there are other ways that have not been thought of yet.

But one thing is for sure – colleges and universities are the beneficiaries of student loans and financial aid. The federal financial aid and student loan programs are not investments since they fully intend on getting that money back, plus interest. The only thing students receive is a degree and the massive amount of debt they’ve accrued while earning it. If these students are not able to put their degrees to work in a career that makes their student loan worth it, the students get the bad end of the deal at the end of the day.

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