Federal Aid Drives College Tuition Up

The evidence keeps mounting that it does and so does the federal aid. “Back in 1987, then-Secretary of Education William Bennett argued that ‘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,'” Ronald Bailey writes in Reason magazine. “Recent research by New York Federal Reserve economist David Lucca and his colleagues have substantially confirmed the ‘Bennett Hypotheses’ finding that a dollar increase in subsidized student loan caps result in a 58 cent increase in an institution’s tuition sticker price.”

“Research by Indiana University economist Grey Gordon and his colleagues confirm the dominance of this effect.
Gordon also notes additional cost drivers including substantially increased demand and the expansion of expensive high skilled workforce to meet that demand. Consider that in 1980, there were just over 12 million students enrolled in U.S. colleges and universities; today nearly 20 million are enrolled. Another relatively minor factor is ‘cost disease.’ Salaries in jobs that have experienced no or low increase of labor productivity, such as college teaching, nevertheless increase in response to rising salaries in other jobs that have experienced higher labor productivity growth.”

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