Presidential Election 2012: Fact or Fiction, Does Federal Aid Contribute to Tuition Hikes?

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In Part I of this series, we examined President Obama’s and Governor Mitt Romney’s general differences in philosophy when it comes to the subject of higher education. Namely, we highlighted how each candidate plans to make higher education more affordable. Governor Romney believes “a flood of federal dollars is driving up tuition,” while President Obama – who nearly doubled Pell Grant awards – has a track record of increasing federal aid.

Romney’s position is known in education circles as the Bennett Hypothesis, the eponymous theory posited by William Bennett, education secretary for the Reagan Administration. In a 1987 op-ed published in The New York Times called “Our Greedy Colleges,” Bennett purported, “The cost of college tuition will continue to rise as long as federal student aid programs continue to increase with little or no accountability.” The reason, Bennett said, is because such aid allows colleges and universities to remain “confident that Federal loan subsidies would help cushion the increase.” He cited that federal outlays for student aid had increased 57 percent since 1980.

Since the time of Bennett’s op-ed, student aid has continued to increase. This year, the total amount of outstanding student loans exceeded $1 trillion – and federal loans constituted $864 billion of the total. “Trends in Student Aid,” a yearly publication from College Board, indicated in 2012 that total education borrowing – which included federal, nonfederal and parent loans – had experienced its first decline, in real terms, in at least 20 years.

Yet despite these consistent rises in federal student aid, college tuition and fees have nearly sextupled from 1978-2008 – rising at an even faster rate than medical care.

Though Bennett acknowledges that other factors – such as market demand for higher education, institutional services and alumni donations – can impact tuition prices, he still stands firm that “the federal mechanism intended to make college more affordable seems to be having little or no effect.”

But many disagree, and even claim the opposite notion that federal student aid does, in fact, contribute to net tuition decreases. Even College Board cites federal student aid as the reason for decreases, saying in their 2012 Trends in College Pricing report, “the federal government markedly increased its funding for students, causing average net prices for students to fall in years when tuition was rising rapidly.”

Surprisingly, studies in pursuit of truth regarding the Bennett Hypothesis have found no conclusion. A 2001 National Center for Education Statistics study found no association between federal aid and tuition costs – but offered a disclaimer that, due to not having the right data or theoretical models, they couldn’t draw a conclusion on the hypothesis’ factuality either way. Subsequent studies have drawn various findings, sometimes even clashing with one another. As an article in The Atlantic stated, “Researchers have been examining the Bennett hypothesis for decades, trying to figure out whether it holds water. So far, we don’t know the answer. Nobody has proved, once and for all, that it’s right. But they’ve found pretty good signs that it might be.”

Perhaps even President Obama is beginning to give the Bennett Hypothesis some credence. In his 2012 State of the Union address, he challenged higher education institutions to find ways to keep tuition prices from rising, saying, “If [colleges and universities] can’t stop tuition from going up, the funding you get from taxpayers will go down.” Obama’s charge earned him a wary nod of approval from Bennett, who wrote, “It remains to be seen if his threat holds any weight and if he will act on it.”