Recently, research has counterintuitively indicated a need to scale back the financial aid we offer prospective students since such policies have thus far made higher education LESS affordable.
In response, there has been one main criticism to that research: "How in the world could increased college assistance have come BEFORE increased tuition costs?" "Go ahead," exclaim the skeptics, "look at the historic record. Tuition increases came first! They were not CAUSED by expansions in financial aid!"
We decided to fact check this critique by doing precisely what was asked; looking at the historic record.
[The following dollar figures have all been adjusted for inflation.] From 1971 to 1981, annual tuition and fees for higher education only rose $2 for a public two year facility. You read that correctly. ONLY two dollars. For a public, four year state school, in state tuition and fees had actually DECREASED $190. For the same period of time, a private four year institution, ALSO decreased by $304. This is very important to note. It means that the cost of higher education was NOT rising at an alarming rate at this point in history. Rather, it had actually decreased or, at most, broken even. (depending on the circumstance) Since that time, however, tuition unfortunately inclined sharply.
So then, what is the record on financial aid for higher education? Unlike the claims from the critics, expansions in financial aid programs DID come BEFORE the start of the tuition crisis. Federal financial aid had its start in 1958, with the National Defense Student Loan Program for low-income students, the precursor to the Perkins Loan Program, and soon after with the Health Professions Educational Assistance Act of 1963 [a]. Note, however, these were relatively small programs and therefore didn't necessarily distort the market in any impactful way. They truly were helping low income individuals, and thus were not wide-scale programs.
It wasn't until later, in 1965, 1972, and 1978, when the financial aid that we recognize today began to take hold. In 1965, for instance, the precursors to the Pell Grant and Stafford Loans were created as part of the "Higher Education Act.  At that time, a key change occurred in the way federal tuition loan programs were financed. "Instead of using government money directly, the loans would be made by bankers. But if students defaulted, the government guaranteed that IT would cover the tab." Think about this perverse incentive for a moment. It meant that capital could be offered in the form of student loans under the presumption that profit from said loans could be kept privately, but if and when losses arose, banks and investors wouldn't have to lose their money since TAXPAYERS would foot the bill. Effectively, this was socializing losses while privatizing gains. It would take years for this perverse incentive to grow into a large scale problem, but it eventually did.
In '72, the precursor to the Pell Grant was created, but more importantly, Sallie Mae was created by Nixon and the Congress. Sallie Mae was a firm that received help from the treasury to buy student loans off of banks, freeing the banks to then offer even MORE federally insured loans. From that point forward, banks had nothing to lose by offering loans since they - quite literally - could ONLY profit from the exchange. That meant a bank's sound underwriting reasoning, which typically would lead them to decline risky or unreasonable loan requests, was no longer present. If that weren't bad enough, the most important change came in 1978 with the Middle Income Student Assistance Act, which expanded federal student assistance programs to include middle-income students in addition to low-income students. This is where everything changed. From this point forward, most of these financial aid programs were no longer limited to a minority of low income applicants, but instead became the norm for nearly the entire populace. Under this arrangement, loans would eventually be made to nearly everyone regardless of the requested price of tuition, and tuition would therefore be free to rise unchecked since no financial institution was saying "no." It should be no surprise, then, that this was the last decade our nation enjoyed relatively affordable tuition. Since that 1978 expansion, the cost of higher education increased more than 13 fold; about 1,225 percent. To put that into perspective, in the same time period, ordinary inflation (CPI) had only increased 279 percent.
NO, massive and alarming increases in tuition did not occur PRIOR to expansions in financial aid. The expansions in financial aid occurred PRIOR to the tuition crisis. We have a legitimate problem on our hands, and it's important that it be properly diagnosed if we are ever to fix it.