Is Financial Aid Really Making College More Expensive?

The Obama administration acknowledges that student loans could be behind skyrocketing tuition. But the real link between college costs and aid is complicated.

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Financial aid, whether it's a cheap loan, a work-study job at the campus library, or a grant, is supposed to make college more affordable and accessible for students. But what if, by handing money out to undergrads, the government is simply encouraging schools to spend more and jack up tuition? 

Meet "the Bennett hypothesis," the dismal notion named for Reagan Education Secretary William Bennett, who suggested it in a 1987 New York Times op-ed diplomatically titled "Our Greedy Colleges." Generous student-aid policies had "enabled colleges and universities blithely to raise their tuitions, confident that Federal loan subsidies would help cushion the increase," he wrote at the time. "Federal student aid policies do not cause college price inflation, but there is little doubt that they help make it possible."

Twenty five years of swelling tuition prices later, Bennett's critique seems to have received a stamp of bipartisan approval, courtesy of the Obama administration. It's the driving spirit behind a White House proposal that would condition a small amount of the federal financial aid that colleges distribute to students on their ability to keep a lid on costs. "We can't just keep on subsidizing skyrocketing tuition," Obama told a rally audience at the University of Michigan last month as he announced the idea. 

True enough. Subsidizing skyrocketing tuition sounds like a supremely poor idea. If only it were clear what the link between student aid and college costs actually was.

PUTTING BENNETT TO THE TEST

Researchers have been examining the Bennett hypothesis for decades, trying to figure out whether it holds water. So far, we don't know the answer. Nobody has proved, once and for all, that it's right. But they've found pretty good signs that it might be.

Critics of the idea like to point to a 2001 study prepared for Congress by the National Center for Education Statistics. Although some earlier stabs at the topic had detected traces of the Bennett hypothesis in certain areas of higher-ed, the NCES found absolutely no association between the availability of most types of financial aid, including loans and government grants, and tuition costs. Unfortunately, the study had a lot of limitations. In so many words, the report's authors cautioned that they didn't have the right data or the right theoretical models to arrive at a solid conclusion. 

In the years since, several academics have taken a crack at the problem, and each study has unearthed slightly different answers.  A team from Cornell University, for instance, found that increases in the size of Pell Grant awards, need-based state aid, and the availability of subsidized loans caused public universities to hike up their tuition for in-state students. Out-of-state tuition, however, wasn't affected. 

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Jordan Weissmann is a senior associate editor at The Atlantic.

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