Responding To Student Groans, Ctd

A reader writes:

I think that one aspect that is getting lost in all of this discussion of mounting student debt is that federal money is an enabler of growing college tuition.  When the government gives students extra money to spend on college, they will tend to compete the price of tuition up.  (Just how much the price increases depends on the relative elasticity of supply and demand.)  If, instead, the government paid universities a certain amount per student admitted, the universities would tend to compete the price of tuition down.

It’s counterintuitive that subsidizing the customer doesn’t ultimately help the customer. But then a lot of economics is counterintuitive.  Ironically, the best way the federal government could aid students would be to eliminate Pell Grants, tax write-offs and credits altogether and use that money to incentivize lower tuition rates on the supply side.