Why Examine the Various Means for Providing Federal Student Aid?
Higher education in the U.S. is often considered to be a private good the benefits of a college education are excludable (only the individuals receiving the education are rewarded in the labor market) and rival (no or small negative externalities are associated with the pursuit of higher education). Further, the extensive support of higher education by the federal government does not make it a public good. Yet, Baum (1995) notes that while we normally think of externalities as negative, there is every reason to imagine a reverse case where positive externalities accrue to society from the engagement or consumption of certain commodities and this is the case for education. All of society benefits (in terms of higher aggregate income) from the investment in human capital attendant to higher education. In addition, Baum (Ibid.) notes how the notion of incomplete information in the market is relevant where “young people have no experience with higher education and may underestimate its val
