The question we, as Americans, have had to ask ourselves time and time again is, why can’t an innovative and wealthy country like America find a way to provide affordable, even free, college education? First, let’s think about what “free” means. Like President Biden’s student loan forgiveness, which is actually a transfer of debt to other taxpayers, free college is a bit of a misconception.

When we think of free college, we think of free tuition to students. This probably means colleges supported by average taxpayers. I think this is a good use of tax dollars. The problem is that it is too expensive as it is and there is no federal incentive for colleges and universities to innovate to be more efficient.

College continues to be one of the best paths to high-paying jobs and fulfilling careers. This is why the Ministry of Education’s wonderful and admirable mission is “to foster academic excellence and ensure equal access, thereby promoting student achievement and international competitiveness preparation.” Financial aid systems are designed to ensure equal access to education, essentially stimulating demand for higher education while ignoring the supply side of the equation. Thus, a perverse incentive for higher education institutions was born.

Perverse incentives are incentives that “unintentionally produce undesirable results that go against the designer’s intent.” Despite the apparently good intentions of the financial aid system, it leads to inaccessible, costly and unequal access to education. By one estimate, college costs have risen nearly five times his rate of inflation over the past 50 years.

The main problem is that the way financial aid is calculated does not put pressure on universities to innovate. One comedian said, “The goal of evolution is to be as lazy as possible without actually dying.” It turns out that this applies not only to businesses and institutions, but also to people. It is up to us as a society and Congress as policymakers to provide incentives for innovation.

Note that the rise in college costs is not solely due to the construction of fancy gymnasiums and over-hiring of administrators. has increased in price over the past 200 years. This is Baumol’s cost disease, well explained by my friend Mike Smith. The only way to combat Baumol’s cost disease is to innovate. To make the instructor’s class time to provide more instruction to more students than the stage strategy of current and past sages.

Respectful recognition that this traditional method of education was so effective that it helped land man on the moon has left prices stagnant due to its entry into federal financial aid calculations. and the price is allowed to rise.

FAFSA’s paperwork is complex, but the formula for determining a student’s financial aid eligibility boils down to simple inputs: household income, number of dependents (or if dependents), and whether they attend school part-time. I can do it. or full-time. With these inputs, independent students can take out direct loans of up to $57,500 to pursue an undergraduate degree, and receive up to $6,895 annually if they qualify for a Pell Her Grant. increase.

Note any important inputs missing in the calculation. It is the cost of the school that the student attends. Without this input, schools have little incentive to limit what they charge or to innovate in order to find more efficient ways to deliver quality education.

It’s easy to subvert perverse incentives for higher education institutions. We need to drive innovation by adding inputs to financial aid calculations.

The total cost per student is not the same as the tuition fee per student. The tuition figures are a game and the goal is to recognize the total amount of tax an institution receives for educating its students. For example, her two-year average tuition at a public university is about $3,800 a year, but the total cost per student is about $18,000 a year, 71% of which is taxes. Meanwhile, the total cost per student at her four-year institution, which is a private non-profit, is about $65,000 annually.

Therefore, in order to calculate access to financial aid, the government should set a cap on the total cost per student. Let’s say that cap is $18,000 per year. Access to financial aid (especially loans) decreases by 10% for every $2,000 he exceeds $18,000, and at $38,000 he has zero contributions.

Will this policy keep low-income students out of elite institutions like Harvard and Yale? Most students don’t go to those places. He attends 4,300 colleges other than they are not in the top 100. And some of the top schools have huge amounts of money to make up the difference. Kudos to Mr. Princeton for making tuition, room and board free for students whose households earn less than $100,000 a year.

We need to fix the perverse incentives driving up college costs. The solution is to change the inputs of the Federal Financial Aid Calculator to drive innovation on the higher education supply side.

Aaron Rasmussen is the CEO and Founder. Outlier.org Co-founder of MasterClass.