by Mitch Kokai
Senior Political Analyst, John Locke Foundation
The expansion of federal student loans has caused tuition prices to increase without increasing college enrollment numbers, according to a report from the Federal Reserve Bank of New York.
The report evaluated student financial data as well as federal student aid programs “to identify the impact of increased student loan funding on tuition.”
According to the report, yearly student loan originations grew from $53 billion to $120 billion between 2001 and 2012, an increase of about 126 percent. During this time frame, average sticker-price tuition nearly doubled, rising from $6,950 to $10,200 in constant 2012 dollars.
The report found that for each dollar of federal aid applied, tuition increased as well.
“We find that each additional Pell Grant dollar to an institution leads to a roughly 55 cent increase in sticker price tuition,” the report says. “For subsidized loans, we find a somewhat larger passthrough effect of about 70 percent.”
In addition to raising prices, the report finds that increases in loans may not have a positive effect on enrollment numbers.
“Studying the effects of increased supply in aid on enrollments is important because expanding access to postsecondary education, especially to lower-income students, is one of the stated goals of the Title IV programs,” the report says.
The bank’s statistical analysis found a correlation between Pell Grants and enrollment but not loans and enrollment.