Research Finds Increased Student Aid Leads to Higher Tuition
This vicious cycle perpetuates itself/ This is how college tuition has risen so drastically in recent years. It needs to stop.
The College Fix reports:
Most research supports theory that student financial aid leads to increased tuition
Thirty years ago, then-Secretary of Education Bill Bennett theorized that rising federal financial aid was having a perverse effect on tuition, letting “greedy colleges” raise their prices without blowback from students and parents.
Much research has been done on the “Bennett Hypothesis” since then, and while it doesn’t all point in the same direction, most of it does, according to a new meta-analysis by the Martin Center for Academic Renewal.
The last major review of the literature was published in 2003, finding the effect of federal aid on tuition ranged from “negligible to as much as 50 percent of the increase in aid,” President Jenna Robinson writes.
After another 14 years of research – resulting in a total of 25 analyses published in peer-reviewed journals or by “respected economic research institutions” since 1987 – the results are “compelling”: Fourteen of the 25 studies show “some positive effect of federal subsidies on the price of higher education in at least one segment of the higher education market.”
Robinson says three of the seven that found “no Bennett effect” also has the smallest sample sizes, because they were conducted much earlier than other studies.
One of the most recent, in 2015, found an even greater “pass-through effect” than a 1998 study on the same phenomenon: a tuition increase of 60 cents for every dollar of aid, up from 50 cents on the dollar.
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Who would have thought?
This is like suddenly discovering that Newton was right all along about that “universal gravitation” stuff.
This part’s wrong, though—
letting “greedy colleges” raise their prices
“Price” is where supply meets demand; “greed” is not a necessary mechanism. Get all and sundry thinking that they have to go to college, and make relatively cheap money available, and you’ve increased demand. And price goes up, sure as F=ma (there’s that Newton guy again).
Wealth of Nations was published in 1776. All this has been well-known since then.
It is similar to the escalating cost of business class travel arrangements. Because there is the perception one is not paying, the airlines and hotels offer ever more services to lure the traveler. Colleges have gone one step further: they have made it ever easier to ensure no flunk outs or culls, and even added a 5th and 6th year for another degree in nothing.
Economics department in 1970 could have told them that in half an hour, after they understood the question was serious. Economics department in 2020 will not be able to tell you how the price of a candy bar is derived after a 30 year study. Because economics is hardly taught anymore. Political theory is taught instead.
I would expect the same to be true of things like “energy efficiency” rebates and tax credits.