In a 1987 op-ed in the New York Times entitled “Our Greedy Colleges,” then-Education Secretary William J. Bennett ventured a theory that linked federal loan subsidies and the rising cost of tuition. His hypothesis has dominated debates surrounding the cost of postsecondary education for the past three decades.
In the piece, he claimed:
“If anything, 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 … Federal student aid policies do not cause college price inflation, but there is little doubt that they help make it possible.”
Wide-ranging research has attempted to ascertain the accuracy of that contention, with varied results. Some studies have found it to be broadly true, while others have found little-to-no correlation between increases in federal loan subsidies and rising tuition costs. Others still have come to more agnostic conclusions.
What is certain is that there is a correlation between the two phenomena. Rising tuition costs have mirrored increases in federal student loans, which in 1978 became available to all students regardless of income. The debate centers on whether this relationship is causal or incidental.
Defining the Bennett Hypothesis
Bennett’s original hypothesis defined the relationship between federal student aid and rising tuition costs rather narrowly—he specifically cited federal loan subsidies, as indicated in the above excerpt.
“If the federal government gives money, tuition goes up. If the federal government doesn’t give money, it goes up … Federal student aid makes it easier for colleges to do what they’re going to do anyway, which is raise tuition.”
Those studying the validity of the hypothesis have frequently interpreted it more broadly, including other forms of student aid, such as Federal Pell Grants and private student loans, in their analyses. And some have ventured theories as to what the other causes might in fact be, whether in concert with, or to the exclusion of, increasing federal aid.
Thus, the Bennett hypothesis debate has come to encompass a wider range of factors than those contained in Bennett’s initial postulation.
There is a political component to the debate over the degree to which federal subsidies have contributed to escalating tuition rates.
Political conservatives typically advocate for reduced government intervention and that includes student assistance. Bennett was Secretary of Education under Republican President Ronald Reagan and now hosts a conservative talk show. In 1981, at the beginning of his first term, Reagan initiated the first of several efforts to trim student aid programs, including subsidized loans and grants, with some success. Critics on the left were enraged.
Political liberals generally have more favorable attitudes toward federal educational subsidies. They tend to look for explanations of the rising cost of tuition elsewhere. One favored notion is that disinvestment in higher education at the state level has forced universities to raise cost of attendance in order to compensate. They argue that increases in financial aid enable students to enroll despite increases in costs.
Investigations by both private and government institutions have attempted to prove or disprove the Bennett hypothesis—and its extensions—using a variety of methodologies and data. Some notable efforts are detailed below.
In Support of the Hypothesis
- A 2014 study on institutions from five states by the non-partisan National Bureau of Economic Research found that for-profit institutions eligible for federal aid charged tuition that was 78% higher than tuition charged by for-profit institutions not eligible for federal aid.
- A 2015 study conducted by the Federal Reserve Bank of New York that studied increases in subsidized loans in comparison to rising tuition costs for 2007-09 found that the latter resulted in tuition hikes of up to 60 cents on the dollar. Unsubsidized loans led to tuition hikes of up to 15 cents on the dollar. The study also found that increased access to aid resulted in increasing college enrollment.
- A 2017 survey of 25 articles published on the subject conducted by the conservative James G. Martin Center for Educational Renewal found that financial aid, including subsidized loans, Pell grants, and private loans, increased tuition at rates of up to 60 cents on the dollar. The paper suggested that private loans should be subjected to discharge in bankruptcy, with the idea that this would compel private lenders to make standards more stringent.
It also suggested restricting aid to students with demonstrated financial need and eliminating certain programs, such as graduate and Federal Parent PLUS loans.
- A 2017 paper from the Mercatus Center, a free market think tank based at George Mason University, surveyed the available literature on the correlation between increased federal aid and rising tuition costs. It also conducted original data analysis. The authors concluded that increasing federal aid corresponded directly to increases in tuition at rates as high as dollar-for-dollar.
They suggest that reduced federal aid to middle-income families would result in lower tuition. In their view, a greater emphasis on vocational training might effectively reduce the number of students at four-year institutions.
Disputing the Hypothesis
- A 1998 book (published in its original form in 1991) entitled The Student Aid Game: Meeting Need and Rewarding Talent in American Higher Education found that for 1978-86, public institutions increased tuition by $50 for every $100 of federal aid. However, they did not find a similar causal link between rising federal aid and tuition increases at private institutions.
While some analysts have interpreted their data as supporting the Bennett hypothesis, the authors themselves felt that the phenomenon was unlikely to have persisted much beyond their period of study and that their conclusions did not support Bennett’s contentions.
- A 1998 report from the National Commission on the Cost of Higher Education investigated college costs from 1987-96. It analyzed published research on the relationship between federal aid and tuition costs and also commissioned two original analyses. Its findings did not support a causal relationship between federal loans and rising tuition costs, but it did acknowledge the existence of contradictory research and recommended further inquiry.
- A 2001 statistical analysis report from the National Center for Education Statistics that looked at data from 1988-98 found no relationship between state or federal aid subsidies and tuition costs.
- A 2003 study from the non-partisan National Bureau of Economic Research found no evidence that institutions jacked up tuition in response to increased federal or state subsidies at either public or private institutions. It did, however, find a relationship between institutional aid and rising tuition.
- A 2017 study from Seton Hall University investigated the effects on the higher lending limits allowed by Federal Grad PLUS loans — instituted in 2006 — on law school tuition. The study examined data from 2001-15. It found a negligible causal relationship between the availability of Federal Grad PLUS loans and rising tuition costs. A slight increase was noted at public institutions.
Lack of Consensus
Examinations of the literature on the Bennett hypothesis reveal a startling lack of consensus, as demonstrated by the studies described above.
Of course, this is to be expected to some extent given the variation in methodology, the different types of institutions studied, the inclusion or exclusion of federal aid programs, and the inconsistencies in the time periods studied.
Most studies, even those that support the hypothesis, acknowledge that in a complex economic system such as that of the United States, a single factor — federal aid — is unlikely to account for rising tuition costs in and of itself. Changes in available aid, economic fluctuations, and evolving student populations confound efforts to generalize the relationship between federal aid and tuition costs over time.
Flaws in Research about the Bennett Hypothesis
Even if the Bennett hypothesis is true, the lack of a strong correlation suggests that it depicts at best a weak relationship. The Bennett hypothesis may be true only for isolated subsets of higher education, such as for-profit colleges and universities.
After all, nobody rightfully believes that a $5,500 Federal Direct Stafford Loan limit and a $6,095 maximum Federal Pell Grant cause some colleges to charge as much as $75,000 a year. The mismatch in magnitude undermines the Bennett hypothesis.
Much of the research about the Bennett hypothesis is flawed because it looks for correlations between the total amount of financial aid and sticker prices, as opposed to correlations between changes in the amount of financial aid and changes in college prices. The former can never demonstrate a causal relationship and the latter appears to disprove it.
Consider that Federal Stafford loan limits did not increase from 1993 to 2007 or from 2008 to the present, yet college costs continued to increase during these periods. The maximum Federal Pell Grant remained unchanged at $2,300 from1989-90 to 1994-95, at $4,050 from 2003-04 to 2006-07 and at $5,550 from 2010-11 to 2012-13, yet college costs continued to increase. Some of these time periods overlap, meaning that there were no increases in federal grants and loans, yet college costs continued to increase at the same pace. Moreover, there was no spike in college costs when loan limits were increased in 2008 or when the maximum Federal Pell Grant jumped in 2009-10.
Some research about the Bennett hypothesis purports to find correlations with gross tuition rates or sticker prices. These results evaporate when retargeted at correlations with net tuition and net price. The correlations also disappear when re-examined at a granular level.
Other Possible Causes of Tuition Inflation
A range of other factors have been posited as explanations for tuition inflation.
Perhaps most prominently, loss of state funding has been blamed. A 2018 report found that state aid had been cut by some $7 billion in the last decade, resulting in tuition hikes. Another 2018 report found this to be true over a longer time period, from 1987 to 2017, though it was quick to caution that state funding was one factor among many.
Other observers have noted the ambiguous measures of institutional financial success in the education sector. Because these measures are often intangible — reputation, for example, is difficult to quantify — spending is not modulated as it might be in other enterprises.
Administrative, infrastructural, service, and regulatory costs are also likely contributors to tuition increases.
Thus, the most parsimonious conclusion is that the Bennett hypothesis accounts for, at most, a portion of the increasing cost of higher education. Nonetheless, the simplicity of the explanation and the plausibility of a supply and demand argument remain appealing to many and will likely persist in discussions of how to mitigate the problem.