Does an increase in Pell Grants make college more affordable, or just stuff the coffers of colleges and universities? A paper by Larry Singell and Joe Stone at the University of Oregon finds support for both sides of that debate.
Here is the abstract:
The Pell grant program is the largest federal program for college students, with support to over three million students at more than six thousand institutions. A prominent question in public debate is whether Pell grants tend to be appropriated by universities through increases in tuition ? consistent with what is known as the Bennett hypothesis. Based on a panel of 1554 colleges and universities from 1989 to 1996, we find little evidence of the Bennett hypothesis for in-state tuition for public universities. For private universities, though, increases in Pell grants appear to be matched nearly one for one by increases in list (and net) tuition. Results for out- of-state tuition for public universities are similar to those for private universities, suggesting that they behave more like private ones in setting out-of-state tuition. Institutional responses in these latter cases appear at odds with federal grants-in-aid policy.
Full paper here.
These findings make sense to me. There is a strong constituency in most states for maintaining the fairly high rate of subsidization for public higher education and that holds down the ability of administrators to capture increases in federal financial aid. Private colleges and universities, however, don’t face the same obstacles to increasing tuition and fees, so an increase in spendable money in the pockets of students gives them a strong incentive to raise prices. And out-of-staters don’t have any political clout when it comes to tuition.
Hat tip: Frank Stephenson
