Report: Little Evidence That Federal Aid Encourages Tuition Hikes
By Brittany Hackett, Communications Staff
Though many make the argument that federal financial aid encourages institutions to increase tuition, a new paper from the American Council on Education found that this is often not the case and that, more often than not, federal student aid reaches its intended target.
The paper, authored by Robert Archibald and David Feldman, examines the "Bennett Hypothesis," a theory named for former Secretary of Education William Bennett, which surmises that increases in list-price tuition amounts are caused by generous financial aid policy. The Hypothesis, Archibald and Feldman write, "largely misses a much broader question. How do changes in aid policy affect the well-being of students who receive grant and loan assistance from the government, given that students often receive various forms of aid from the institutions they attend?"
To answer that question, the authors looked at a framework of college tuition-setting behavior, which showed that there are ways institutions can adjust their own internal scholarships and discounts after they know how much federal student aid a student has been awarded. The framework also showed that there is a lack of incentive among many campuses to change their list price tuition in response to changes in federal aid policy.
"We see little scope for a Bennett effect at colleges and universities that give out a substantial amount of need-based assistance of their own and who serve a student population that includes some upper-income families," the authors write. "By contrast, any links between list price tuition and federal aid policy are more likely at colleges and universities that give very little institutional aid, which is mainly the for-profit sector, or at nonprofit institutions that serve very few upper-income families."
Rather, they write, the "most important questions" about federal financial aid policy revolve around program design and how to achieve the targeted results. There is "ample" evidence that federal financial aid policy makes higher education more affordable for many low-income families and helps reduce dropout rates, even if some of the aid "displaces grant aid the institutions might otherwise have given," the authors write.
However, there are also several problems with the design of federal aid programs, such as the one-size-fits-all model that is currently used and the barriers to access due to the complexity and a lack of transparency of the Pell Grant Program.
"We do need to know how much of the higher education funding provided by the federal government reaches its target," Archibald and Feldman conclude. "But this is only a small part of a much broader set of questions about the best ways to overcome the real financing constraints that stand between so many people and achieving important educational goals that are privately and socially productive."
Publication Date: 3/22/2016
Denise D | 3/22/2016 1:21:50 PM
David S. is exactly right about the existence of aid not affecting the cost of tuition. With regard to whether aid is reaching its targets, that has to do more with federal government laws and regulations than the programs.
Years ago, families had to report all their income from all sources, including social security, foreign income excluded on the 1040, veterans' benefits, welfare, and more. With these items excluded from the calculation, as well as many of a family's assets, there are more and more people qualifying for Pell Grants and other programs designed to assist the neediest students--people who would never have qualified in the past. In addition, dependent students whose parents qualify for an auto-zero calculation don't even have to report their income, which is sometimes more than the parents' income. And "independent" students with little or no income who say they don't file taxes or who claim zero exemptions (which by IRS definition means that they are providing less than half their own support) are not even required to complete the untaxed income and benefits section of the FAFSA, much less chosen for verification!
Some of the changes in the FAFSA form and the items counted were done to exclude specific populations from having to pay their fair share while others were done in the name of "simplification" of the FAFSA, but all these items contribute to the inequitable distribution of the Pell Grant and other need-based aid.
David S | 3/22/2016 10:38:40 AM
The Bennett Hypothesis has always served as nothing more than a data-free argument to reduce or eliminate federal aid. Consider that the student body at many of the most expensive colleges might only include about 10% Pell recipients and that a maximum Pell is only about 10% of the cost of attendance. Consider that federal aid programs can remain flat or even decreased for years (hands up if you remember nearly 20 years with a maximum $2625 freshman loan), yet tuition rises regardless of what happens with federal aid. State aid gets cut...tuition keeps going up.
Yes, tuition is too high and there are 1001 different reasons for that. The existence of Pell Grants and student loans are not among those 1001 reasons.
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