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Paper Argues There Is Scant Evidence Proving Federal Aid Drives Up College Prices

May 13, 2013

Heller monograph

Tuition Policy at Colleges and Universities Is a “Multifaceted Exercise”

In a new monograph written for ACE, Donald E. Heller argues there is scant evidence of a relationship between changes in federal student aid and tuition increases.

Does Federal Financial Aid Drive Up College Prices? examines the research on the so-called Bennett Hypothesis, which stems from a 1987 New York Times op-ed by former Secretary of Education William Bennett. He suggested that the availability of federal student loans particularly subsidized loans, provides “cover” for institutions to raise tuition, because students can offset any price increase with these loans.

The Bennett Hypothesis has been “misremembered” as linking all federal aid—grants as well as loans—to tuition increases, writes Heller, who is dean of the College of Education at Michigan State University.

Heller gives a brief overview of federal financial aid programs, recent trends in tuition, and the economic theory behind financial aid and tuition, and then reviews some of the major interpretations of the Bennett Hypothesis advanced over the years.

The final section of the paper summarizes what this body of research reveals about the relationship between federal student aid and tuition. Heller concludes that while the hypothesis may be intriguing, there is little compelling evidence that it is an accurate interpretation of the price-setting behavior of U.S. colleges and universities. 

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