In a report released last week, the Federal Reserve Bank of New York presented preliminary findings on the impact of increased student loan funding on tuition between 2008-10. Through a highly technical analysis of detailed student-level financial data and changes in federal student aid programs the report, Credit Supply and the Rise in College Tuition: Evidence from the Expansions in Federal Student Aid Programs, estimates that tuition sticker prices increased due to a:
According to the report the tuition-loan sensitivity is highest among top-quartile tuition institutions.
The analysis also shows that sticker price increases at for-profit institutions are higher than at non-profits, and that there was a large abnormal stock market response to the analyzed Higher Education Act (HEA) changes.
This report uses data from three main Department of Education (ED) sources: the Integrated Postsecondary Education Data System (IPEDS), Title IV Administrative Data from ED’s Federal Student Aid (FSA) office, and the restricted-use student-level 2004 National Postsecondary Student Aid Survey (NPSAS:04). These sources are combined into a nationally non-representative sample of 790 institutions between the 2000-01 and 2011-12 academic years. In addition to their findings on federal loans the paper also attempts to analyze the impact of changes in federal aid on changes in institutional grants and growth of undergraduate enrollment. To do so data from NPSAS:04 and NPSAS:08 were used along with data from IPEDS and find, as with Pell Grant effects, the impacts of institutional grants are not statistically strong.
The premise for this report is built around recent research comparing the shared features of the housing market to that of postsecondary education. According to the researchers these features include:
Based on these similarities this report attempts to examine what, if any, effect the student loan credit expansion has had on the cost of postsecondary education. In addition to shared features with the housing market, this report utilized the hypothesis postulated in 1987 by William Bennett which argues 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.”
What are your thoughts about the impact of federal student aid on higher tuition sticker prices? Let us know in the comments section below.
Publication Date: 7/13/2015