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Where Are They Getting That Money From? Subsidies and Financial Aid Explained

College tuition is expensive enough, especially if you’re not only paying for your education, but for those who cannot afford it also.

Public and Private colleges alike all suffer from the vicious circle of subsidies. It is not a new concept to hear that tuition of college and universities continue to increase with each passing year. But the idea of subsidizing tuition is an entirely new idea when students hear why they pay such a high bill at the end of each semester.

These subsidies are used at the expense of those with middle to high-income students, and are placed to aid those in need of money for their education. This is known as the Net Tuition Revenue Model.

This model starts by using an incremental cost system, where people pay the full amount of money in order to pay off any debts. Unfortunately, this is the part of the article where it takes a bit of a Business/Accounting tone. Once the facility breaks even — owes no money —  the excess money gets directed into another source. Anyone who is paying for a product or service after the break even point is immediately paying a discounted amount.

In general, public colleges set aside a range of five to 40 percent of student tuition to financial aid scholarships. According to an article in the Wall Street Journal by Douglas Belkin, “Student subsidies, which are distributed based on need, don’t show up on most tuition bills.”


These subsidies are another variable that play into the politics of raising tuition costs. Although this process benefits many of the lower-income families, this is not exactly beneficial to those who have to pay the already ridiculously high out-of-state tuition. Fortunately for Penn Staters, this model is not how students receive financial aid.

There are many forms of financial aid that are offered through the University. However, financial aid is based off of two credentials: merit and need. Majority of the time, financial aid is distributed to those that need it, which is determined by the filing of FAFSA. But if this money doesn’t come from subsidizes, then where does it come from? Donors are the main contributors of the scholarship and financial aid sources offered by Penn State. And the reasons for donating this money is endless.

Judith Rile, the Financial Aid Coordinator, said, “I give money to general scholarships fund of my undergraduate school. Some give money to plan programs, other’s to scholarships — anyone can contribute to it.”

The only subsidizes that occur within Penn State are for those that live in Pennsylvania. Since Penn State is a state supported University, the tuition costs for students that live in Pennsylvania are significantly lower than those who live out-of-state. Essentially, these students are paying a discounted rate, whereas out-of-state students have to pay the full price of tuition. Someone has to pay the bills for revamping the campus, right?

My name is Bianca Sepulveda, but everyone refers to me as Marie Veda. I am a senior at Penn State Berks with a major in Professional Writing and two minors in Business and English. While enrolled at Penn State, I have been a Resident Assistant in the dorms and a tutor in the Writing Center.
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