College is becoming increasingly unaffordable for many students just entering their higher education years, with the average tuition jumping to $7,020 per year for a 4 year college, says the College Board annual report.

But is it because colleges are raising prices to meet the demand for more education, or is there a more sinister reason for the skyrocketing price of continued education past high school?

In a relatively free market, prices reflect the meeting of supply and demand. Sadly, what was once a market of competition among universities for student attention is now a market of inflationary attack by the one player in the game that the mainstream media ignores: the governments.

One area of the education that is ignored by almost every article you’ll read is the amount of actual dollars focused on higher education. When you have independent families and students coming up with their own money to put towards colleges, competitive factors such as cost, degree-strength and overall quality of education allows the buyer of the service (the student) to play the sellers of the service against each other (the colleges). But now we have a third party involved in throwing off realistic supply and demand figures: state and federal funds that increase the amount of money available to purchase an education.

In all situations where a third party involves itself in the payment for services rendered, prices go up. We have this problem in the health care sector, where Federal laws mandating health insurance coverage have caused prices in health care to skyrocket in 30 years. We also have this problem with Federal and state grants, loans and work-study programs throwing more and more money at education: that additional money in the market causes education institutions to raise their costs based on the new supply of dollars in the market.

It’s a losing battle, too: as college costs accelerate due to more and more government money entering the market, more and more government agencies cry for additional grants and loans due to high costs. As the new dollars comes into the market, prices rise to accept them. This trend will repeat itself, over and over, in future years.

In 2008-2009, $180 billion was spent in student aid alone. Of this huge amount, 65% of it was covered by federal government programs. 2007-2008 had 58% of the student aid dollars covered by federal government programs. Is it any wonder that the price of tuition went up almost 7% year over year?

When government subsidizes something, we get more demand for it. Medicare and social security subsidies make health care more expensive; federal tax benefits and direct grants for solar power create more demand for solar panels which means the retailers raise their prices to match demand. Federal loans and grants for education make the price for education go up.

The proper solution isn’t to worry about the educators (the universities and colleges) over-charging, but to withdraw federal and state aid for students. It might sound harsh, but the proper role of education is to provide the service for those who actively want it enough and save for that education, not to give everyone a right to go to school. If we can withdraw these grants and government-backed loans, schools would lower their prices significantly and return the entire higher education market to a competitive playing field.

Poor and middle class students would immediately see huge tuition price drops, and private colleges would be challenged to offer their own financial aid.

$180 billion a year for aid in education in a country of 300 million residents total means that each adult and child in the country is paying $600 per year to send someone else to college. Does anyone see a flaw in this thinking?

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