College Aid Not Helping Students

An Education Policy Reading List

Prepared by Neal McCluskey

Federal student aid intended to help people afford college may ultimately be self‐​defeating, enabling schools to raise their prices at breakneck speeds, cut their own aid programs, or encouraging states to restrain higher education appropriations. Especially because most schools are officially nonprofit, and everything they spend they call “costs,” it is difficult to prove empirically that they might be raising prices because they can, not because they must. Still, the studies below find that in one way or another funds from government aid programs are often being “captured” by someone other than the students they are supposed to help.

  • Accounting for the Rise in College Tuition,” by Grey Gordon and Aaron Hedlund (National Bureau of Economic Research, September 28, 2015)
    Quantitative model of American higher education suggests that the Federal Student Loan Program alone could account for a 102% net tuition increase between 1987 and 2010.
  • Does Federal Student Aid Raise Tuition? New Evidence on For‐​Profit Colleges,” by Stephanie Riegg Cellini and Claudia Goldin (National Bureau of Economic Research Working Paper No. 17827, February 2012)
    For‐​profit schools that offer similar programs, but one is eligible to receive students with federal aid and the other is not, tend to have price differences roughly equal to the value of grant aid and loan subsidies.
  • Resident and Nonresident Tuition and Enrollment at Flagship State Universities,” Michael Rizzo and Ronald G. Ehrenberg (College Choices: The Economics of Where to Go, When to Go, and How to Pay for It, edited by Caroline M. Hoxby (Chicago, IL: University of Chicago Press, 2004)
    Increases in federal and state student aid lead to increases in in‐​state tuition levels at public colleges.
  • The Impact of Federal Tax Credits for Higher Education Expenses,” Bridget T. Long (College Choices: The Economics of Where to Go, When to Go, and How to Pay for It, edited by Caroline M. Hoxby (Chicago, IL: University of Chicago Press, 2004))
    States reduced appropriations to public two‐​year colleges in response to the introduction of the federal Hope Learning Credit and Lifetime Learning Tax Credit. Some evidence that public two‐​year colleges raised their prices beyond just compensating for cuts in state spending.
  • How Do Colleges Respond to Changes in Federal Student Aid?” by Rebecca J. Acosta (Working Paper No. 808, University of California, Los Angeles, October 2001)
    Private institutions increase institutional aid and tuition revenues in response to federal grant and loan increases. Public institutions appear to raise tuition revenues and decrease institutional aid in response to grants, but have no response to loans.
  • Keeping College Affordable: Government and Educational Opportunity, by Michael S. McPherson and Morton O. Schapiro (Washington, DC: Brookings Institution Press, 1991)
    An increase in federal grant aid leads to an increase in institutional aid and no price increase at private institutions, but public institutions appear to raise tuition by $50 for every $100 increase in federal grant aid.

Cato Institute’s Higher Education Research