Just over 25 years ago, then–secretary of education William Bennett first articulated his now-famous “Bennett Hypothesis”: “Increases in financial aid . . . have enabled colleges and universities blithely to raise their tuitions, confident that federal loan subsidies would help cushion the increase.”
Now, we have yet more evidence the hypothesis is correct. A new paper released by the National Bureau of Economic Research by three leading economists finds that universities, especially private ones, often use increases in federal student aid in order to hike tuition and rake in more federal dollars. As the Chronicle of Higher Education reports:
By giving aid directly to students, rather than subsidizing institutions, the federal government “provides some potentially undesirable incentives for private colleges to ‘game the system,’ strategically increasing tuition to increase student aid,” the study says.
Unfortunately, the study also claims that cuts in state aid to education drive up tuition costs. While ACTA hasn’t analyzed the author’s models, we have shown in the past how wise and prudent management of university funds can help public universities weather budget cuts without passing the added costs along to students.
This study is sure to cause a stir.