Subsidies for education

This article reports that government subsidies to students have increased the price of education. Students should be able to use supply and demand analysis to explain the link and to predict the effect on the quantity traded.

Aid's Role in Rising Tuition Gains Credence
by: Josh Mitchell
Aug 03, 2015
Click here to view the full article on WSJ.com

TOPICS: Education

SUMMARY: More economists believe the federal government's loose standards for student loans are fueling a vicious cycle of higher college tuition prices, similar to what some say happened with the housing bubble.

CLASSROOM APPLICATION: Students can evaluate the effect of federal subsidies for higher education on tuition and the cost and quality of higher education.

QUESTIONS: 
1. (Introductory) What is the effect of federally-subsidized loans and grants to higher education on the demand for higher education? What is the effect of increased demand for higher education on equilibrium tuition set by colleges and universities?

2. (Advanced) What is the effect of federally-subsidized loans and grants to higher education on the quality of services offered by colleges and universities?

3. (Advanced) What is the effect of federally-subsidized loans and grants to higher education on the costs of providing higher education?

Reviewed By: James Dearden, Lehigh University

Supply and demand