Financing students is a great example of how government ends up getting it wrong. In the US, we finance college students with grants and subsidized loans. But rather than making college affordable, this aid has had just the opposite effect by driving tuition up across the board. Flush with public money, colleges have become wasteful bureaucracies that are unaccountable to their customers, students and parents.

But once an entitlement exists, it's almost impossible to take it away. As Reagan said, "The nearest thing to eternal life we will ever see on this Earth is a government program". So it just becomes a permanent structural deficiency of our society.

> In the US, we finance college students with grants and subsidized loans. But rather than making college affordable, this aid has had just the opposite effect by driving tuition up across the board.

Increasing price (outside of aid) isn't actually the opposite of the effect aid is intended to have -- subsidies always increase the cost before subsidy; the intent is that they will decrease the cost after subsidy for those receiving the subsidy since, under most reasonable supply/demand conditions, the amount of increase will be less than the amount of the subsidy.

And this would probably work fine for grants taken alone, but we can't really isolate the impacts.

Loans, however, aren't subsidies, they are cost-deferment measures. They aren't meant to make college more affordable (in terms of lower net cost after the policy) for those who get them, they are meant to allow people who could not afford college up-front but who would benefit economically from college so that college would be affordable if it could be paid for on a deferred basis can afford it.

College loans, however, are problematic because humans (in general, and those younger than mid-20s in particular) tend to be irrational and to -- as has, I believe, been shown in numerous studies -- overly discount deferred costs, so that loans have the effect of subsidies on near-term costs while at the same time just being deferred costs. So they increase the pre-policy cost without actually being a subsidy to those who qualify for them.

Subsidized loans are subsidies, in the form of 0% interest when you're in school and very low interest rates after. Those both cost the government a lot of money that the borrower would otherwise pay.

> Subsidized loans are subsidies

They are subsidies on the cost of borrowing money, but not on tuition (except at a very small ratio); but they act (in terms of effect on tuition prices, for the reasons discussed in my previous post) like a much larger direct tuition subsidy. because of this, it is much more likely that loan subsidies have a perverse effect on affordability than grants.