Does government aid raise the cost of college? According to a report by the American Council on Education: In 1987, then U.S. secretary of education William Bennett authored an op-ed piece in The New York Times titled “Our Greedy Colleges.” In the piece, Bennett complained about a comment made by Benno C. Schmidt Jr., then the president of Yale University (CT), who had blamed Yale’s tuition hike on cutbacks in federal financial aid. Bennett responded by writing, “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” (Bennett, 1987, p. A31). The theory behind Bennett’s assertion is relatively simple: The availability of federal loans—particularly subsidized loans offering a below-market interest rate and payment of interest as long as the student is enrolled in school—provides “cover” for colleges to raise their prices, because students can offset a price increase, or at least a portion of that increase, with federal loans. This one sentence became perhaps the one thing for which Bennett is best known, and it is commonly referred to as the “Bennett Hypothesis.” Many prominent libertarians such as Peter Schiff believe in this hypothesis and have used it to justify the reduction or elimination of government aid to students. However, there isnt clear evidence that the hypothesis is an accurate description of reality. The report also happened to review the empirical evidence on the Bennett hypothesis and concluded: While the Bennett Hypothesis may be intriguing, there is little compelling evidence that it holds true with respect to the price-setting behavior of colleges and universities in the United States. This complex process involves far too many variables for it to be essentially explained by the simplistic notion that tuition-setting boards sit around and say, “Well, Pell grants are going up $200 next year, so we can raise tuition $100.” While any change in federal aid may be a very small piece of the puzzle that leads to year-to-year tuition increases, there is scant evidence that it is a major contributing factor. One could make the moral argument that the government should not involuntarily take money from taxpayers for the benefit of students, but with the available evidence one cannot confidently say that government aid to students increases the cost of college (for the purpose of arguing that aid should be reduced or eliminated). Report: https://acenet.edu/news-room/Documents/Heller-Monograph.pdf
Posted on: Mon, 26 Jan 2015 10:53:07 +0000
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