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.
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.
Supply and the Rise in College Tuition: Evidence from the Expansion
in Federal Student Aid Programs,” by David O. Lucca, Taylor
Nadauld, and Karen Shen (Federal Reserve Bank of New York, Staff
Report No. 733, July 2015)
Finds a large “pass-through” effect on prices from subsidized federal student loans, and smaller effects from Pell Grants and unsubsidized federal loans.
Road to Pell is Paved with Good Intentions: The Economic Incidence
of Federal Student Grant Aid,” by Lesley J. Turner (Working
Paper, August 14, 2014)
About 12 percent of Pell Grant aid is captured by colleges.
- “The U.S. Market
for Higher Education: A General Equilibrium Analysis of State and
Private Colleges and Public Funding Policies,” by Dennis Epple,
Richard Romano, Sinan Sarpça, and Holger Stieg (National Bureau of
Economic Research Working Paper No. 19298, August 2013)
Increases in federal student aid lead to decreases in private colleges’ institutional aid.
- “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,
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.
Benefits from Student Aid? The Economic Incidence of Tax-Based
Federal Student Aid,” by Nicholas Turner (Economics of
Education Review 31, no. 4 (2012): 463-81)
Tax-based student aid such as the Lifetime Learning Tax Credit is offset by cuts to institutional aid on roughly a dollar-for-dollar basis.
Institutions Respond Asymmetrically to Changes in State Need- and
Merit-Based Aid? ” by Bradley A. Curs and Luciana Dar (Working
Paper, November 1, 2010)
While colleges lower their published prices in response to increases in state merit-based aid, they raise their net prices, and decrease institutional aid, in response to state need-based aid.
Whom the Pell Tolls: The Response of University Tuition to Federal
Grants-in-Aid,” by John D. Singell, Jr., and Joe A. Stone
(Economics of Education Review 26, no. 3 (2006): 285-95)
Public colleges do not appear to raise their in-state prices in response to Pell Grant increases, but they increase their out-of-state rates, and private colleges raise their tuition, on roughly a dollar-for-dollar basis.
- “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.
Do Financial Aid Policies Affect Colleges? The Institutional Impact
of the Georgia HOPE Scholarship,” by Bridget T. Long
(Journal of Human Resources 39, no. 4 (2004): 1045-66)
In response to state HOPE scholarships, colleges in Georgia, especially private institutions, raised their charges and reduced institutional aid. In the worst case, some private colleges appeared to capture 30 cents of every aid dollar.
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.