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Fact check: Does research show that federal student aid increases tuition?
Sen. Bernie Sanders and New York Gov. Andrew Cuomo
August 14, 2017
By Taylor Kempema
In April 2017, the New York Legislature passed and Gov. Andrew Cuomo (D) signed a budget plan for offering free tuition to students whose families earn up to $100,000 a year (with some conditions). The new Excelsior Scholarships will use tax dollars to pay an eligible student’s tuition that is not covered by other state and federal financial assistance.[1][2] Commenting on the effects of tuition subsidies, Mary Clare Amselem, an education policy analyst at the Heritage Foundation, claimed that "Economists have found that virtually unrestricted access to federal student aid encourages colleges and universities to raise their tuition prices.”[3]
Is Amselem correct that research shows federal student aid increases tuition?
Yes. The Federal Reserve Bank of New York released a study in July 2015 that documented the effects on tuition of increasing the maximum Pell Grant awarded to students.[4][5] The researchers found that a dollar increase in the Pell Grant cap resulted in a 37 cent increase in “sticker-price tuition” between the 2001-2002 and 2010-2011 school years.[6]
In a study released earlier this year, economist Lesley J. Turner of the University of Maryland found that “schools may respond to federal student aid by increasing prices faced by recipients”—either by directly increasing tuition or by offsetting larger Pell Grants with reductions in other types of financial aid.[7] (Reducing other aid is tantamount to a tuition increase because it increases students’ costs.)
Background
Title IV of the Higher Education Act of 1965 authorized federal student aid programs, including grants and loans, for postsecondary education.[8] Pell Grants, the leading source of federal grants under Title IV, are given to undergraduate students based on financial eligibility. The maximum Pell Grant award in any given year is set by Congress, based, in part, on an estimate of the number of eligible students.[9]
From 1973 to 2015, total Pell Grant expenditures increased 5,620 percent, from $500 million to $28.6 billion. The average award increased 1,281 percent, from $270 to $3,728, and the maximum award increased 1,178 percent, from $452 to $5,775.[10]
| Pell Grant expenditures, average award, and maximum award (1973-2015)* | |||
|---|---|---|---|
| Year | Total Pell Grant expenditures (in billions) | Average award | Maximum award |
| 1973† | $0.5 billion | $270 | $452 |
| 1980 | $2.4 billion | $882 | $1,750 |
| 1990 | $4.9 billion | $1,449 | $2,300 |
| 2000 | $8.0 billion | $2,040 | $3,300 |
| 2010 | $35.7 billion | $3,833 | $5,550 |
| 2015‡ | $28.6 billion | $3,728 | $5,775 |
| *Figures are adjusted for inflation †First year for which data is available ‡Latest year for which data is available Source: U.S. Department of Education, "Federal Pell Grant Program Annual Data Reports," June 2017 | |||
According to data compiled by the College Board, tuition and fees have undergone double-digit increases between 1981-1982 and 2016-2017 (among various types of institutions). The largest increase among public four-year colleges was 34 percent between 2001-2002 and 2006-2007.[11]
| Listed tuition and fees (1976-2016)* | ||||
|---|---|---|---|---|
| Academic year | Private, nonprofit four-year institutions | Five-year percentage change | Public, four-year institutions | Five-year percentage change |
| 1976-77 | $10,680 | - | $2,600 | - |
| 1981-82 | $10,810 | 1% | $2,390 | -8% |
| 1986-87 | $14,630 | 35% | $3,110 | 30% |
| 1991-92 | $17,340 | 19% | $3,720 | 20% |
| 1996-97 | $19,920 | 15% | $4,560 | 23% |
| 2001-02 | $23,560 | 18% | $5,110 | 12% |
| 2006-07 | $26,380 | 12% | $6,860 | 34% |
| 2011-12 | $29,700 | 13% | $8,820 | 29% |
| 2016-17 | $33,480 | 13% | $9,650 | 9% |
| *In 2016 dollars Source: CollegeBoard, "Tuition and Fees and Room and Board over Time, 1976-77 to 2016-17, Selected Years," accessed August 9, 2017 | ||||
New York Federal Reserve study
As noted above, researchers with the Federal Reserve Bank of New York examined the effects of increasing the maximum Pell Grant on tuition at 1,060 postsecondary institutions.[4] They concluded that a dollar increase in the maximum Pell Grant award resulted in a 37 cent increase in tuition. Moreover, financial aid provided by states and/or universities did not offset the tuition increases; the larger Pell Grants actually reduced institutional aid by 30 percent.[4][12]
In his 2015 testimony before Congress, economist and co-author David Lucca characterized the Federal Reserve study as “evidence of a causal link between student loan availability and tuition.” However, he also noted the possibility of other factors in the rise of tuition, including declining state contributions to public universities; increased demand for higher education; and lower opportunity costs of attending college when the unemployment rate increased following the 2008-09 recession.[13]
Turner study
Economist Lesley J. Turner also examined the effects of Pell Grants on tuition among different types of schools—for-profit versus nonprofit, for example.[7] Turner found that the schools “captured” an average of 15 percent of Pell Grant awards. In this circumstance, “capture” refers to schools lowering other forms of aid to a Pell Grant recipient or increasing tuition in response to the Pell Grants. In this way, the school is substituting (capturing) the federal aid to offset its own expenditures (or that of the state). Turner found that the level of capture varied among schools.[14] “Non-selective,” non-profit institutions captured 31 cents of every Pell Grant dollar, while “more selective” non-profit institutions captured 75 cents of every Pell Grant dollar. Public colleges and universities captured about 5 cents of every Pell Grant dollar, she found.
Conclusion
In response to New York’s plan to offer free tuition to students with a family income below $100,000 per year, policy analyst Mary Clare Amselem claimed, “Economists have found that virtually unrestricted access to federal student aid encourages colleges and universities to raise their tuition prices.”[3]
At least two recent studies have documented tuition increases in conjunction with larger Pell Grants. The Federal Reserve Bank of New York found that a dollar increase in the maximum Pell Grant resulted in a 37 cent increase in sticker-price tuition. The researchers also found that an increase in Pell Grant aid was associated with a reduction in institutional aid of 30 cents on the dollar.[4]
Economist Lesley J. Turner, in her study, documented that institutions “captured” an average of 15 percent of Pell Grant aid by lowering institutional aid or increasing tuition.[7]
See also
Sources and Notes
- ↑ New York State, "Tuition-Free Degree Program: The Excelsior Scholarship," accessed July 5, 2017
- ↑ The income cap will be raised to $110,000 in 2018 and $125,000 in 2019.
- ↑ 3.0 3.1 The Daily Signal, "The True Costs of New York's 'Free College' Program," April 11, 2017
- ↑ 4.0 4.1 4.2 4.3 Federal Reserve Bank of New York, "Credit Supply and the Rise in College Tuition: Evidence from the Expansion in Federal Student Aid Programs," July 2015
- ↑ Amselem cited this study in her article.
- ↑ The term “sticker price tuition” refers to the annual tuition listed by the school. The term "net tuition” refers to the sticker price minus grants, scholarships, and other financial aid.
- ↑ 7.0 7.1 7.2 University of Michigan, "The Economic Incidence of Federal Student Grant Aid - Lesley J. Turner," January 2017
- ↑ The statute has been reauthorized eight times—the last in 2008—and operated more recently under temporary extensions.
- ↑ U.S. Department of Education, "Federal Pell Grant Program," accessed August 1, 2017
- ↑ U.S. Department of Education, "Federal Pell Grant Program Annual Data Reports," June 30, 2017
- ↑ The College Board, "Tuition and Fees and Room and Board over Time, 1976-77 to 2016-17, Selected Years," accessed August 9, 2017
- ↑ Financial aid from the state and/or university is referred to as “institutional aid.”
- ↑ United States House Committee on Ways and Means, "Testimony of David Lucca, Ph.D. Before the Subcommittee on Oversight Committee on Ways and Means," October 7, 2015
- ↑ Turner classifies public, nonprofit, and for-profit institutions as either nonselective or “more selective” based on factors used by the U.S. Department of Education’s Integrated Postsecondary Education Data System (IPEDS) and Barron's Profiles of American Colleges. Factors that determine selectivity for four-year public and nonprofit institutions include acceptance rates, college entrance exam scores, and the grade point average and minimum class rank required for admission. All for-profit schools and institutions offering two-year programs are considered non-selective.
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