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Federal Watch: No, It Doesn’t. Report Concludes Federal Student Aid Does Not Drive Tuition Increases



By Terry W. Hartle

The idea that increases in federal student aid cause colleges and universities to raise tuition has attracted plenty of attention over the past several decades. It was a notion given prominence in 1987 by then U.S. Secretary of Education William J. Bennett. And it seemed to many—particularly conservative critics of higher education—to provide a nice, simple explanation for a complex and important social problem: the steady and occasionally rapid increase in the price of a postsecondary education.

There is just one problem. Analytic evidence doesn’t support what came to be known as the “Bennett hypothesis.” 

The latest analysis of the relationship between federal student aid and postsecondary prices comes from a report by the respected, nonpartisan Congressional Research Service (CRS). This policy-analysis arm of Congress says it undertook the report “in response to numerous congressional requests to explain what is known about the relationship between student aid and [college] prices.”

The CRS looked at nine empirical studies and tried to isolate the effects of changes in federal aid on college and university prices and found—no surprise—that there is a complete lack of consensus about the findings. The bottom line: CRS noted that “it is not plausible to say that college prices would not have gone up much or at all in the absence of increases in federal financial aid.” Clumsy prose aside, the unmistakable conclusion is that there is no conclusive evidence to support the idea that federal financial aid drives up tuition.

The CRS report goes on to say that there are a “plethora of potential explanations for escalating college prices,” from declining state support to fluctuating endowments and the cost of skilled labor and technology. Moreover, at public colleges and universities, which educate 80 percent of all postsecondary students, the decline in state support is clearly related to tuition increases. The word “related” is critical. CRS finds a correlation—tuition goes up when state support falls—but it does not claim causation.

A March 2013 report by the Center on Budget and Policy Priorities found that “public colleges and universities across the country have increased tuition to compensate for declining state funding.” The center’s report concluded that “major increases in federal student aid and tax credits, on average, have fallen well short of covering these increases.” The report makes obvious what public college and university presidents have long argued: Cuts in state support are directly associated with increases in tuition prices.

This is hardly the first evidence that federal student aid does not drive the price of a higher education. In their book Why Does College Cost So Much?, for example, economists Robert B. Archibald and David H. Feldman not only found no relationship between Pell Grants and increases in tuition, they discovered a reverse effect at private institutions. That is, they concluded that increases in federal Pell Grants resulted in slower tuition increases at private institutions.

The CRS report makes clear that it is impossible to demonstrate, based on the available research, that there is any direct relationship—and certainly no causal relationship—between federal student aid and institutional tuition decisions.

The most basic question in any research is whether it is possible to demonstrate a clear, consistent relationship between two variables and thus prove a hypothesis. Absent the demonstration of such a relationship, analysts cannot simply claim that a connection exists. Well, they can assert it, but the claim lacks any validity.

Postsecondary affordability and the rising price of higher education are matters of intense public concern that stir significant public discussion and strong feelings. They will continue to be discussed at the dinner table, in the media, and in public forums. But the Bennett hypothesis should no longer play a major role in these discussions.

Terry W. Hartle is ACE’s senior vice president for government and public affairs.

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