Financial aid: Tax credit extended as college tuition continues to rise

Senate passes college tuition financial aid bill as college tuition continues to rise. Even with financial aid, are rising costs the only factor pushing tuition beyond some students' reach?

At a cost of $18 billion dollars, the US Senate voted last Wednesday to extend the $2,500 tax credit for college tuition until the end of 2012.

According to a report released by Sen. Charles E. Schumer (D) of New York, the extension of the tax credit will help millions of middle-class families battle the high cost of a college education, with tuition costs skyrocketing over the past ten years due to rising overall costs. The problem is compounded by the tightening of the student loan credit market that has forced more students to take out both federal and private loans at higher rates and in larger amounts.

At a time when finding employment is difficult and a college degree can make the difference for a job applicant, more people than ever are having to decide whether or not college is even financially feasible. According to a report from the federal Advisory Committee on Student Financial Assistance, cost factors prevent 48 percent of college-qualified high school graduates from attending a four-year institution and 22 percent from attending any college at all.

Are costs the only reason for tuition increases? No, there is evidence that students select a college based on perceived value of the financial aid package. What does this mean? Let’s say a private college has tuition of $20,000 each year (without room and board). This would be considered a modest amount compared to the many private colleges charging $40,000 or even $50,000 a year in tuition. However, at $20,000, this school can only offer $10,000 in scholarship money while the more expensive school can offer $20,000 in scholarships. Which is a better deal? Parents pay $20,000 in one case and only $10,000 in the other but the award amount is twice as high and the education at the more expensive school must be better since it costs so much more, right? Some schools have discovered that raising tuition and scholarships has resulted in an increased number of students.

Does this market demand for higher rates combined with deeper discounts contribute to the overall rise in college tuition? Should tuition rates be fixed and discounts eliminated?