Toward a Sensible Federal Financial Aid Policy

A few weeks ago, I was one of the audience gathered in the Hillsdale College DC campus’s marvelous new but neo-classical auditorium to hear US Education Secretary Linda McMahon discuss the Trump Administration’s achievements and plans in education. As she has on other occasions, Secretary McMahon emphasized that the principal role of the Department of Education is to administer programs and pass through funds mandated by Congress. 

Among these higher education programs, those with the widest impact on students and their families are federally funded and regulated loan and grant programs. In December 2020, in the waning days of the first Trump Administration, Congress called for reform and simplification of the Free Application for Federal Student Aid (FAFSA). The Biden Administration, however, botched the rollout of the revised application. When asked to list her achievements as Secretary since entering office in March 2025, Secretary McMahon put first and foremost her department’s success at getting the revised FAFSA website up and running.

Getting an internet portal to work changes the user interface for accessing financial aid. But it leaves unanswered the question — to be fair, a question that extends far beyond the scope of the Federal executive in higher education policy — of what a sensible and equitable Federal financial aid policy should look like. What kind of national financial aid policy would truly serve the interests of the nation and of all Americans? 

In thinking about the benefits of higher education, we need to separate, at least in thought, the public benefits of education from the private benefits to an individual student.

Individual higher education that serves the public good should be paid for by the public, at the local, state, and Federal levels. This applies obviously to military training and education.

But education benefits society more broadly insofar as we want a generally educated citizenry to vote and serve on juries. Within the liberal arts, programs rooted in history, political philosophy, and ethics have clear public value. To be prepared to be jurors or voters for county sheriff, citizens should have studied the great thinkers on law, justice, and punishment, or had their opinions enlightened by their fellow citizens who have been so educated. The public library will let any resident borrow Aristotle, Rawls, or Dostoevsky for free. Similarly, citizens of all ages should be offered programs that educate them to carry out their civic duties in an enlightened and humane manner. Because such programs, like the public library, are publicly created for the public good, they should be, to the extent possible, paid for by taxes and donations, but free to the student, auditor, or user. Nothing stops book borrowers from donating to the public library, but their use of the library is not conditioned on any payments.

What is publicly paid for should be publicly regulated and audited. Whatever modest student fees are set for liberal arts or higher civics examinations and diplomas should be strictly supervised and controlled.

Individual higher education that is primarily a private good should be privately financed by students or their families. By a “private good,” the economist means a good whose enjoyment is private to the possessor and unshared with the public. Education as a private good includes a course in marketing that teaches one to sell shampoo more effectively, wherein the primary return is the financial gain to the student and his or her employer. Higher education is, as economists like to say, to some extent an investment in human capital, an investment students undertake because they expect a higher income later. 

If universities wish to operate as completely free enterprises, they are welcome to refuse federal financial aid entirely. But if an institution chooses to line its coffers with federally subsidized dollars, the government has a fiduciary duty to dictate the maximum price it will subsidize.

Consequently, if such federally subsidized borrowing is to make access to human capital formation equitably available, every subsidized program must be paired with price controls. Otherwise, as we have seen in the last fifty years, higher education institutions will raise their sticker price to meet the subsidized demand. Instead of being offered equitable access to valuable training, students will be laden with student loan debt, even as the institutions use the money to bloat their bureaucracies to foster ideological policing rather than improve education.

Higher education is also good in itself, apart from whatever benefit it may return in the form of an educated citizenry and whatever payoff it has in terms of higher individual earnings. But insofar as education is a private good in that sense, such as courses that teach one to appreciate the beauty and diversity of Andean solitary bees or Korean punk rock, it should be privately financed — not, however, through debt. Apart from whatever role education plays in making you a better citizen or a better marketer, educated taste is undeniably important for a flourishing life. However, you should not be borrowing money merely to educate your taste in art, music, or literary theory any more than you would borrow to dine on kaiseki (for the uninitiated, that is the Japanese haute cuisine that few of us have had the means or good fortune to experience). 

But what about access? Shouldn’t those without family or personal resources be able to access training for lucrative and prestigious positions in medicine, law, and business?

Put aside business school, which provides ample private returns to the individual MBA, and should thus not be publicly subsidized, and law, which I have discussed elsewhere.

Regarding medicine, the way to open up the profession is to ensure that every American likely to become a competent physician can access medical training. It does not benefit America to limit the number of US-born doctors by restricting medical school admissions and bringing in foreign medical graduates to fill in as residents, fellows, or fully qualified physicians. Any American who is sufficiently motivated to practice medicine and likely to pass medical school, residency, and medical boards should be offered a place in medical school. Yet any subsidies of medical school loans, whether for public service or equitable purposes, should be paired, once again, with price controls.

So what should be left of financial aid? Liberal education is vital, too vital to the public to be restricted to those who can pay or borrow for it. Education for public civilian and military service must be paid for by the public, with careful public management to control costs and ensure quality. Education for individual enjoyment should be paid for by that individual or his or her family, but nobody should be borrowing a cent for that. Finally, we may need to open up education for lucrative jobs to those without personal or family means. Yet the way to do that is through a carefully managed system of subsidized loans along with price controls on tuition that accredited institutions can charge.

Secretary McMahon is not currently mandated by Congress to carry out anything like these reforms. In my view, her stewardship of current Congressionally prescribed programs, some good, some well-intentioned, and some misbegotten, shows that she could do a lot of good if Congress would pass better laws.

Michael S. Kochin is an associate professor of political science at Tel Aviv University and a visiting scholar at the Van Andel Graduate School of Government at Hillsdale College in D.C. and in the School of Philosophy at the Catholic University of America.