SEARCH TODAY'S NEWS ARCHIVES

Federal Aid ‘Not A Significant Driver’ of Tuition At Non-Profit Schools, Cato Paper States

By Brittany Hackett, Communications Staff

Although many researchers and policymakers believe the federal financial aid system encourages institutions to raise tuition, there is a lack of compelling evidence to prove that argument for the schools that educate a vast majority of America’s college students, according to a new paper from the Cato Institute.

The paper, co-authored by Robert B. Archibald and David H. Feldman, explores the validity of the so-called Bennett hypothesis, which argues that increases in federal financial aid lead schools to increase tuition, thus making it less affordable for students. Using an enrollment management model of how institutions select which students to admit and how to set their tuition, the authors demonstrate that the Bennett hypothesis is not reflective of how federal aid impacts tuition at non-profit schools, though it does appear to happen at for-profit schools.

The model used in the paper makes three assumptions about admissions and tuition setting: that schools use some mechanism to rank potential students; that they somehow estimate the willingness to pay of the most highly-sought groups of potential students; and that schools admit and enroll students with lower admissions ratings in order to meet enrollment and revenue goals.

The authors then used a hypothetical increase in the maximum Pell Grant as an example to illustrate how non-profit institutions behave when there are increases to federal financial aid, using the enrollment management model outlined above. An increase in the Pell Grant can lead to many options for institutions, including subtracting the full Pell increase from the amount a student would need to borrow, effectively reducing the net price tuition for that student. Another option would be for the institution to reduce its own institutional aid dollar-for-dollar with the federal aid, giving the school a tuition windfall that could then be reinvested in its students and leaving the net price unchanged. The authors note that “in neither case would the student see a higher list price or net price.” However, it is likely to occur in the “market-oriented” for-profit sector of higher education.

“The debate about the Bennett hypothesis is part of an ideological tussle that currently dominates public discussion of higher education,” the authors write. “But the college cost problem has deep roots in the nature of higher education as a personal service industry with a highly educated workforce. Our student-centered federal financial aid system is not a significant driver of the tuition bill at the nation’s nonprofit colleges and universities.”

 

Publication Date: 6/21/2016


David S | 6/21/2016 12:7:18 PM

Thank you. The only way the Bennett Hypothesis could be true is if a majority of (if not all) students at a majority of schools received a full Pell Grant and if all federal aid was increased annually at the student level (not at the allocation level) at the same rate as tuition...and then on top of that, aid was sufficient so that students and families had no out of pocket expenses. In my approximately 110 years working in financial aid by now, I have observed that none of those 3 conditions have ever been close to true. And there's no reason to believe they ever will.

You must be logged in to comment on this page.

Comments Disclaimer: NASFAA welcomes and encourages readers to comment and engage in respectful conversation about the content posted here. We value thoughtful, polite, and concise comments that reflect a variety of views. Comments are not moderated by NASFAA but are reviewed periodically by staff. Users should not expect real-time responses from NASFAA. To learn more, please view NASFAA’s complete Comments Policy.

Related Content

Annual Business Meeting & Policy Update: Spring 2024: Annual Business Meeting & Policy Update: Spring 2024

MORE | ADD TO FAVORITES

Most College Presidents Are Confident in Financial Stability, But Share Concerns About Public Confidence in Higher Ed

MORE | ADD TO FAVORITES

VIEW ALL
View Desktop Version