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Myth: Increases in Federal Student Aid Drive Increases in Tuition

 

Bryan J. Cook and Terry W. Hartle

 

In the words of New York Yankee great Yogi Berra, “It’s déjà vu all over again.”

Concerns about college affordability have yet again given rise to the oft-stated but empirically unsupported claim that increases in federal student aid are a primary driver of increases in college tuition.

For example, visit The Washington Post’s website and search for their Feb. 1, 2012, editorial that claims “federal aid has had the perverse effect of enabling tuition hikes.”

The issue has already sparked numerous studies. The few studies that suggest a connection between federal student aid and tuition cannot agree on which sectors it may affect. 

A 1991 study by McPherson and Schapiro, for example, found increases in federal grant aid expenditures caused tuition to increase at public, but not private, four-year institutions1. Rizzo and Ehrenberg’s 2004 study of public institutions found that increases in the maximum Pell Grant drove up in-state but not out-of-state tuition2.

Meanwhile, a 20073 study by Singell and Stone found just the opposite—Pell Grants increases had no impact on in-state tuition, but did cause an increase in out-of-state tuition.

Far more common and persuasive are the numerous studies that find absolutely no evidence of a relationship between changes in federal student aid and tuition. A 1998 analysis by the congressionally chartered Commission on the Cost of Higher Education did not find a relationship4. An econometric study by the Department of Education found that increases in federal financial aid had absolutely no impact on tuition at any type of institution, public or private5. Extensive analysis of the issue by Robert Archibald and David Feldman not only found no relationship between Pell Grants and increases in tuition at public universities but a reverse effect at private institutions: Increases in the Pell Grant generally reduced private sector tuitions6.

The bottom line is that there is no evidence—and certainly no conclusive data—to suggest that federal student aid significantly affects college prices. None, zero, zip, nada. And according to the by-the-book congressional watchdog, the United States Government Accountability Office, when the results of any scientific research are inconclusive, the correct scientific assumption is no effect has been proven. Game, set, match.

One factor is clearly and unambiguously related to tuition increases at public institutions: cuts in state operating support. A report mandated by Congress in the 1998 reauthorization of the Higher Education Act7 not only found “no association between most of the aid variables (federal grants, state grants, and student loans) and changes in tuition in either the public or private not-for-profit sectors” but also stated that over the past decade increases in college tuitions are in fact driven most by “public revenue shortfalls and greater institutional spending.”

Figure 1 (below) highlights the relationship between state appropriations and tuitions. Increases in tuition are clearly accompanied by declines in per capita state support particularly during the recessions of 1991-93 and 2002-04. The Delta Cost Project found that among public four-year institutions, tuition increases replaced losses in state aid; for community colleges, tuition increases were still not enough to cover declines in state funding.



The situation is more complex at private nonprofit colleges. Few of these schools get significant state operating support. But they often report significant levels of private gifts and endowment earnings (both of which can go up or down), and increases in institutional spending. As a result, any effort to pin tuition changes to a single factor (like federal aid) are very problematic because it is impossible to isolate the dependent variable.

Have college tuitions increased in years when federal student aid has increased? Of course. But college tuitions also increase in years when student aid does NOT show any gains. if there is a relationship, it is incidental, not causal.

The bottom line is that conclusive empirical evidence does not exist to show any causal relationship between increases in college tuition and federal student aid. Wishing and hoping for a relationship as a way of criticizing colleges or justifying cuts in student aid is not the same thing as demonstrating that a definitive relationship exists.

If anything, it would be more reasonable to say that college and university tuitions increase regardless of whether federal student aid goes up. Such a conclusion will not reassure students, families, the media, or policymakers, but it has the advantage of being absolutely correct.

​Bryan J. Cook is the director of ACE’s Center for Policy Analysis. Terry W. Hartle is the senior vice president of ACE’s Division of Government and Public Affairs.

 
1 McPherson, Michael S., and Morton Owen Schapiro. Keeping College Affordable: Government and Educational Opportunity. Washington, DC: Brookings Institution, 1991.
2 Rizzo, Michael J., and Ronald G. Ehrenberg. “Resident and Nonresident Tuition and Enrollment at Flagship State Universities.” In College Choices: The Economics of Where to Go, When to Go, and How to Pay for It, ed. Caroline M. Hoxby, 305-53. Chicago: University of Chicago Press, 2004.
3 Singell, Jr., Larry D., Jr., and Joe A. Stone. “For whom the Pell Tolls: The response of University Tuition to Federal Grants-in-Aid.” Economics of Education Review 26 (June): 285-95, 2007.
4 National Commission on the Cost of Higher Education. 1998. Straight Talk About College Costs and Prices. Washington, DC.
5 Wellman, Jane V. 2008. Cost, Prices, and Affordability: A Background Paper for the Secretary’s Commission on the Future of Higher Education.
6 Archibald, Robert B., and David H. Feldman. 2011. Why Does College Cost So Much? New York, NY: Oxford University Press.
7 Cunningham, Alisa F., Jane V. Wellman, Melisa E. Clinedinst, Jamie P. Merisotis, and C. Dennis Carrol. Study of College Costs and Prices, 1988-89 to 1997-98. U.S. Department of Education, NCES 2002-157, 2001.