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Does Federal Financial Aid Drive Up College Prices?

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Does Federal Financial Aid Drive Up College Prices?

April 01, 2013

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

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, which suggests the availability of federal student loans—particularly subsidized loans—provides “cover” for institutions to raise tuition.

The final section of the paper summarizes what this body of research reveals about the relationship between federal student aid and tuition. 

Heller is dean of the College of Education at Michigan State University.

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