By Donald E. Heller
Does increased federal financial aid lead to increased tuition?
This long-running policy debate owes itself in large part to “Our Greedy Colleges,” a 1987 New York Times op-ed piece by then U.S. secretary of education William Bennett, which claimed that federal financial aid increases “have enabled colleges and universities blithely to raise their tuitions.”
Over the succeeding 25 years, that premise remains a potent, albeit largely unexamined article of faith among some policymakers. Particularly in light of recent increases in tuition, it’s worth assessing whether there’s any truth to what has become known as “the Bennett Hypothesis.”
To be clear, Bennett was speaking fairly narrowly about the impact of federal subsidized loans on college tuition prices, and not about all federal financial aid, let alone all financial aid from all sources. He was also cautious in not implying that federal loan subsidies were the sole or even the primary driver of tuition price increases, as in this sentence: “Federal student aid policies do not cause college price inflation, but there is little doubt that they help make it possible.” However, such words do leave the reader with an impression that there is some causal linkage between federal subsidized loans and increasing tuition prices.
The problem with the Bennett Hypothesis is that there is no clear evidence of any such causality. The findings of research that has attempted to measure the relationship between federal financial aid and tuition price increases can be described as ambiguous at best.
Some studies find a relationship between Pell grants and tuition increases; others do not. Some find a relationship in some college sectors but not others, and other studies find exactly the opposite result.
All of these studies suffer from major limitations, including the imprecision with which researchers can measure key variables, including Pell grant awards at the institution, as well as other components of financial aid.
Without accurate data it is impossible to accurately model, or even approximate, what the true supply and demand curves are for an institution or a group of institutions. Without the ability to discern the supply and demand, it is difficult to determine with any degree of certainty how an external shock to the system—such as an increase in Pell grant awards—would affect the equilibrium point of the higher education market, and thus, what the impact would be on tuition prices and the number of students who enroll. This complex process involves far too many variables for it to be essentially explained by the simplistic notion that tuition-setting boards sit around and say, “Well, Pell grants are going up $200 next year, so we can raise tuition $100.”
Any change in federal aid may be a very small piece of the puzzle that leads to year-to-year tuition increases, but there is scant evidence that it is a major contributing factor. As intriguing as the idea of such causality might be, there is little compelling evidence that the Bennett Hypothesis actually holds true.