Phi Beta Cons

Do Federal Grants and Loans Raise Tuition?

Yes, according to some strong empirical evidence.

Ever since I began paying professional attention to higher education, I have heard the claim that federal grants and loans have contributed to the increase in tuition. But I haven’t seen a lot of formal evidence.

The absence of such evidence is revealed by the fact that the main reference is usually to a 1987 New York Times op-ed by William Bennett. He wrote that “increases in financial aid in recent years have enabled colleges and universities blithely to raise their tuitions.” This is known as the “Bennett hypothesis.”

At a conference last week at the George Mason University law school, Jayme S. Lemke of the Mercatus Center reminded her listeners of an ingenious study that does provide empirical  evidence for the “Bennett hypothesis.” The study by Claudia Goldin and Stephanie Riegg Cellini was initially published in 2012 by the National Bureau of Economic Research (and discussed here).

Many for-profit schools are eligible to receive federal grants (Title IV grants and loans) from their students. Many other for-profit schools, however, are not eligible, for a number of reasons. They may not offer any full-time degree programs (required for eligibility), they may accept as students those who don’t have high school degrees, or they may simply not want to deal with federal red tape.

Goldin and Cellini were able to find comparable programs offered by the two categories of schools. These were short-term certificate programs in such fields as health, cosmetology, and business. They compared the tuition charged by the two kinds of schools for essentially the same programs. They found that the Title IV schools charged far more than the non-Title IV schools—a whopping 78 percent more. The authors concluded that the difference was the available federal aid. Voilà! The Bennett hypothesis, empirically observed.

Jane S. ShawJane S. Shaw retired as president of the John W. Pope Center for Higher Education Policy in 2015. Before joining the Pope Center in 2006, Shaw spent 22 years in ...

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