Dive Brief:
- A new study from the New York Federal Reserve Bank has found a strong connection between rising federal aid and an increase in the cost of tuition and fees.
- The study used student-level financial data to explore the timing of college cost increases and policy changes for financial aid programs, looking at the differences across private nonprofit, public, and for-profit schools.
- It found federal aid increases were disproportionately followed by tuition increases at institutions with a large number of students eligible for financial aid, with the effect most pronounced at private nonprofits, where every additional $1 of aid was followed by a $.65 hike in tuition.
Dive Insight:
The Federal Reserve study finally brings hard data to former secretary of education William Bennett’s hypothesis that federal aid allows schools to raise tuition, confident the government will bridge the gap between college costs and student ability to pay. It looked at 2008 and 2009 data, which followed increases in federal caps on student aid.
The strongest connection between aid and tuition increases came with changes to the government’s subsidized loan program. While increasing investment in Pell Grants and the unsubsidized loan program also preceded tuition increases, they were more modest. Across the board, the correlation between the two changes was less pronounced at public schools. For their part, the few for-profits in the study saw boosts to their stock value with heightened government investment in financial aid.
At a time when student debt is being especially scrutinized, the report is damning for private nonprofit colleges, which have continued to raise tuition and fees far beyond the rate of inflation.