Skip to main content

Does Federal Financial Aid Make Colleges Raise Prices?

In American colleges and universities, financial aid packages are often need-based (see this example from Yale), meaning the school calculates the student’s ability to pay and then makes up the difference with loans and/or grants. It’s an admirable sentiment, but one upshot of this at many schools is that any outside scholarships students receive will be automatically deducted from that package because they increase student’s ability to pay. The school is in effect eating that scholarship.

William Bennett, Ronald Reagan’s Secretary of Education once argued that this kind of thing happens generally across higher education with respect to Federal financial aid (like Pell Grants), and is responsible for a lot of the huge and continuing price increases at American institutions. The “Bennett Hypothesis,” as it came to be known, said basically that increases in Federal aid were being eaten by higher education (in a less defensible way to be sure) and that cushion provided an excuse for year-on-year price increases several times the rate of inflation:
If anything, increases in financial aid in recent years have enabled colleges and universities blithely to raise their tuitions, confident that Federal loan subsidies would help cushion the increase. In 1978, subsidies became available to a greatly expanded number of students. In 1980, college tuitions began rising year after year at a rate that exceeded inflation. Federal student aid policies do not cause college price inflation, but there is little doubt that they help make it possible.
 Is it true? One wonders how we could possibly disprove this hypothesis. A counterfactual example might be when federal aid is cut, but this study notes that a decline in federal aid is also linked to tuition increases. Strictly speaking, the hypothesis must be incorrect, but according to Andrew Gillen of the Center for College Affordability & Productivity, it’s hard to know:
Big picture: the story that emerges from the literature is that the evidence is mixed. The Bennett Hypothesis is neither confirmed nor denied (see the links here for examples).
He reframes the hypothesis thusly:
The second way in which this report differs from the Bennett Hypothesis is that it is explicit about when the effect occurs (and the types of aid likely to suffer from it). Specifically, aid will fuel increases in spending when it is given to students whose ability and willingness to pay is in excess of current costs at the school. Because costs and ability to pay vary by school, this implies that a much more nuanced view is warranted. The same aid program can have different effects based on the characteristics of the school and the students attending… Thus, lumping all federal aid together when analyzing its impact, or even all aid of a given type, is unlikely to yield accurate results. Unfortunately, public data on aid is generally only available in aggregate form (not student specific), which limits the extent to which we can analyze these issues.

A quick scan of the literature lends some support to this more nuanced approach, outlined in detail here. This study finds evidence for the effect, but only in “top-ranked private universities,” while this study finds it only for in-state students. But stepping back, this reframing seems vague to the point of being useless. Basically Gillen is saying that given the current data, there is no way to conclusively prove his hypothesis one way or the other. I would be interested to know exactly what kind of data Gillen would consider necessary to make that judgment.. Any experts on the topic out there?

On a related topic, see this article by Benjamin Ginsberg article on college administrators in our latest issue.

Cross posted at College Guide.


Popular posts from this blog

Why Did Reality Winner Leak to the Intercept?

So Reality Winner, former NSA contractor, is in federal prison for leaking classified information — for five years and three months, the longest sentence of any whistleblower in history. She gave documents on how Russia had attempted to hack vendors of election machinery and software to The Intercept , which completely bungled basic security procedures (according to a recent New York Times piece from Ben Smith, the main fault lay with Matthew Cole and Richard Esposito ), leading to her capture within hours. Winner recently contracted COVID-19 in prison, and is reportedly suffering some lingering aftereffects. Glenn Greenwald has been furiously denying that he had anything at all to do with the Winner clusterfuck, and I recently got in an argument with him about it on Twitter. I read a New York story about Winner, which clearly implies that she was listening to the Intercepted podcast of March 22, 2017 , where Greenwald and Jeremy Scahill expressed skepticism about Russia actually b

Varanus albigularis albigularis

That is the Latin name for the white-throated monitor lizard , a large reptile native to southern Africa that can grow up to two meters long (see pictures of one at the Oakland Zoo here ). In Setswana, it's called a "gopane." I saw one of these in my village yesterday on the way back from my run. Some kids from school found it in the riverbed and tortured it to death, stabbing out its eyes, cutting off its tail, and gutting it which finally killed it. It seemed to be a female as there were a bunch of round white things I can only imagine were eggs amongst the guts. I only arrived after it was already dead, but they described what had happened with much hilarity and re-enactment. When I asked why they killed it, they said it was because it would eat their chickens and eggs, which is probably true, and because it sucks blood from people, which is completely ridiculous. It might bite a person, but not unless threatened. It seems roughly the same as killing wolves that

Internet Writing and the Content Vacuum

It's been a few times now I've had full weekday control of the Monthly 's headline blog, Political Animal, and I feel like I have a decent idea now what it's like being at the top level of blogging. (Not to say that I am  at the top level, of course, just that I've walked in those shoes for a few days and gotten some blisters.) Anyway, the first thing I've noticed is that it is really, really hard to do well. I've had days before when I just didn't have anything to do and ended up at home writing 4-5 posts in one day on this site, but pro blogging is an entirely different beast. The expectation is that during the day you will write 10-12 posts. This includes an intro music video, a lunch links post, and evening links and/or video. So that means 7-9 short, punchy essays on something , with maybe 1-2 of those being longer and more worked out thoughts. This ferocious demand for content is both good and bad. The iron weight of responsibiliy—the knowledge