Inflation mystery. An Aha! moment for me.

[kandrathe]

Loans are not subsidies that can be expected to reduce "retail" prices. They are money given in order to afford high prices, not a bargain made to keep prices down. Perhaps it amounts to the same thing in the end, except that, if your measurement of education costs is not total spending, but tuition, then you end up with a higher result.

I guess the question is whether the price(and perceived value) causes enough students to stop, or transfer. Or, are they so committed to pursuing this course that they blindly plow forward, regardless of cost, to attempt to get through it. In that case, price becomes inelastic, and to a point they will spent more, especially when the government gives them the money up front. And... Since it is a loan program, the regenerating pool (Perkins and Stafford Loans) of available money grows at the interest rate, so one might speculate then that the inflation rate on tuition also would tend to grow at the interest rate (5-6%). Also, being that they are backed by the full faith and credit of the US government, there is no risk for institutions in building them into financial aid packages.

For most students, their student loans will be their first experience in trading their future earnings to pay for today's requirements. I really don't think many of them think about it very hard. The discount rate is a built in expectation in the decision making process for competitive schools, in other words, hardly anyone pays full price. Generally, it is a no brainer decision if you opt for a more vocational degree that increases your earning value. Too bad if you really really want a liberal arts education.