Why college tuitions are rising: A contrarian view

The “Path to Prosperity” report issued by House Budget Committee Chairman Rep. Paul Ryan calls for limiting the growth of financial aid to college students, says Gary C. Fethke, professor and former dean of the Henry B. Tippie College of Business at the University of Iowa, and Andrew J. Policano, dean of the Paul Merage School of Business at the University of California, Irvine. The report claims that “increases in Pell Grants appear to be matched nearly one for one by increases in tuition at private universities.” The assertion that increased aid increases tuition, the “Bennett Hypothesis,” has been endorsed by President Obama (in a speech made last January at the University of Michigan). Also, Mark Zandi, chief economist at Moody’s Analytics, argues that government loans and subsidies are not cost-effective for taxpayers because “universities and college just raise their tuition.” The Ryan Report refers to a 2007 paper in the Economics of Education Review, in which the authors (Larry Singell and Joe Stone) in fact conclude: “Based on a panel of 71 universities from 1983 to 1996, we find little evidence of the Bennett hypothesis among either public or lower-ranked private universities.” Their study does find an effect on the tuition of non-targeted students at top-ranked private universities…

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