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What income groups are most likely to benefit from state and federal subsidies to...

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yaga49 | (Level 1) Valedictorian

Posted June 11, 2013 at 1:29 PM via web

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What income groups are most likely to benefit from state and federal subsidies to higher education? Why?

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pohnpei397 | College Teacher | (Level 3) Distinguished Educator

Posted June 11, 2013 at 1:42 PM (Answer #1)

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This depends to some degree on the form of these subsidies and what the institutions of higher education do with them.  However, the income groups that should benefit from subsidies are the middle and lower income groups.  The upper income groups can already afford college easily enough and therefore do not benefit nearly as much from the subsidies.

In economic terms, subsidies are supposed to be a determinant of supply.  If the government subsidizes a certain product (in this case, higher education), the supply of that product will increase.  Supply and demand analysis tells us that an increase in supply leads to a higher equilibrium quantity at a lower equilibrium price.

This should help lower and middle income people more.  If there are more spots available in colleges, more marginal students can attend.  Marginal students are often from poorer families. If prices go down, people with lower incomes can afford to attend. 

However, this will only work if the colleges use their subsidies to lower the cost of attendance.  If they take the subsidies and use them for things like more lavish facilities, they will not be helping the lower and middle classes.

Ideally, then, subsidies to higher education will be most beneficial to the lower and middle classes.

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