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Increases in the maximum Pell Grant award give private colleges a good reason to raise tuition, concludes a research paper published by the National Bureau of Economic Research.</p>
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<p>As an example, the researchers analyze the most recent increase in the Pell Grant maximum from about $6,000 to $8,000, finding that the greater award does little to attract more students to college or to lower their overall cost of attendance.
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<p>The paper is</p>
<p>The U.S. Market for Higher Education: A General Equilibrium Analysis of State and Private Colleges and Public Funding Policies
Dennis Epple, Richard Romano, Sinan Sarp</p>
<p>That’s a pretty one-sided spin on the conclusions of the paper, Bel. </p>
<p>I’m not an economist, but it seems to me this paper doesn’t exactly “find” anything with respect to what has actually happened in the real world. It’s not an empirical paper, it’s mostly about developing and justifying the authors’ model of the relationships between college tuition, attendance, income and ability levels of students, institutional need-based and merit-based financial aid, and federal and state aid, the federal aid primarily Pell grants and the state aid primarily annual appropriations to public universities, and then making some predictions based on that model.</p>
<p>Based on the model–which like any model is only going to approximate reality, though some models are better approximations than others–the authors predict that a $2,000 increase in Pell grants would have several effects. First, attendance at private schools would not increase, and the fraction of lowest-income students attending private schools would not change very much. Second, private schools would capture a fraction of that increase to raise tuition by an average of $440, using the increased revenue to enhance educational quality. Third, private schools would capture another fraction of the increase by offsetting increased Pell grants by reductions in institutional need-based aid, also by $440, with the resulting savings also being used to enhance educational quality. Fourth, the percentage of students receiving financial aid increases “substantially” (their word), from 45% to 50%. Fifth, the enhanced educational quality coupled with additional revenue from Pell grants and increased tuition would allow private colleges to add some additional high-ability but middle-income students, displacing some of the high-income but lower-ability students they previously relied on for tuition revenue. And sixth, the net cost of attending private colleges would decline by an average of $630. </p>
<p>Now that set of outcomes may not help low-income students very much, but they’re certainly not hurt by it, either. Private colleges get better (presumably a good thing), and high-ability middle-income students get better educational opportunities (also a good thing, in my book, anyway) at a somewhat lower cost (another good thing). The only ones clearly made worse off are high-income but lower-ability students, who don’t get into private colleges so easily on the strength of Daddy’s money; and presumably, though the authors don’t explicitly say so, high-income students generally, regardless of ability, because they end up paying higher full tuition (unless they’re getting merit aid, which some are). OK, the sky isn’t falling yet.</p>
<p>The authors don’t spend as much time discussing the effect of increased Pell grants at public universities, which is odd since that’s where most Pell grant recipients are. They do say that at public universities, overall attendance increases and the number of low-income students attending colleges increases, albeit by relatively small amounts. Admission standards are lowered somewhat for in-state students (this follows directly from the assumption built into the model that the mission of public universities is to maximize educational opportunities for in-state students regardless of ability, which certainly doesn’t describe all of them) and admission standard are raised for out-of-state students. Finally, the net cost of attending a public university declines only modestly, by $50.</p>
<p>All well and good, but the authors save their strongest language for the consequences of reducing Pell grants by $2,000:</p>
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<p>The middle class also takes a whack: the percentage of students at public universities receiving any financial aid drops from 37.8% to 32.3%, while the average net cost increases by $521. Public universities do benefit, however, from an influx of high-ability middle-income students now being denied access to private colleges in favor of high-income lower-ability students</p>
<p>Effects of a $2,000 reduction in Pell grants on private colleges aren’t so great, either. Private colleges reduce tuition by an average of $630, but the average net cost increases by $430, despite an average increase in institutional financial aid of $700. Reductions in tuition revenue and increased financial aid are made up by reducing expenditures on educational inputs. And some high-ability middle-income students are displaced to make way for more high-income lower-ability full-pays.</p>
<p>How well all this squares with reality is, IMO, yet to be tested, but even on this model, the effects of Pell grants are far more complex than your one-sided summary would have us believe.</p>
<p>Where is MaineLonghorn. This discussion is going to get political very fast. I plan to sit on the sidelines and just enjoy the action. Pass the popcorn.</p>
<p>^ It’s also worth considering the recent $2,000 increase in Pell grants in light of a longstanding trend of annual tuition increases, regardless of Pell grant levels. Should we count the recent increase as a real increase, potentially producing the kinds of effects described by the authors (not all of which a negative, by an means)? Or is it more akin to an inflation adjustment, holding the real value of Pell grants more or less constant over some time period, and thus avoiding the devastating impacts the authors predict would ensue if Pell grants were cut? Presumably those same impacts would ensue, albeit more slowly, if Pell grants were held at constant nominal dollar levels while their real value was eroded by education-cost inflation.</p>
<p>I’m just quoting the authors of the paper, ClassicRockerDad. To my mind there’s a huge difference between between “politics” and dispassionate discussion of particular points of higher education policy. If we can’t discuss the latter on a website devoted to college admissions and attendance, then something is deeply wrong.</p>
<p>I think the authors of this study would disagree with you somewhat, snugapug. Their model assumes colleges aren’t profit-maximizing institutions. Instead, they hypothesize private colleges try to maximize educational quality so as to preserve their “legacy” or enhance their reputation. To do so, the colleges obviously need money, so they will try to maximize tuition revenue to the extent that’s compatible with their educational quality objectives. But those educational quality objectives also require that they attract top students. So even if they could generate higher net revenue by, e.g., raising tuition (= the top price they charge) and reducing or eliminating financial aid (= price discrimination in favor of certain students depending on SES and/or ability), they won’t do so if it drives out high-ability students in favor of wealthier but lower-ability students. Thus you sometimes hear it said that Harvard could charge any price it wanted and someone would pay it; but Harvard won’t do so because that would drive out most of the best students and attract a bunch of rich dunderheads, and Harvard’s reputation would go into decline. </p>
<p>For state schools, the model assumes their mission is to maximize the number of in-state students they serve, regardless of ability. This would tend to push public universities in the direction of lowering net cost to in-state students to the extent they can afford to do so, either by lowering tuition, providing more institutional aid (something many of them can’t afford), or by enrolling more out-of-state students (but this cuts both ways, because even as it raises revenue that can be used to keep net costs for in-state students low, it makes fewer places available to in-state students).</p>
<p>I think both sets of assumptions are overly simplistic. On the private school side, it doesn’t account for non-tuition revenue sources, or for the low numbers of Pell grant recipients at some schools. I can’t imagine Harvard being so sensitive to a $2,000 increase or decrease in maximum Pell grants when that $2,000 represents less than 5% of the tuition of a student receiving the maximum Pell grant; the maximum $8,000 Pell grant represents less than 20% of the recipient’s tuition; and only 15% of undergrads receive Pell grants of any size. If I’m doing my math correctly, that means Pell grants represent less than 3% of Harvard’s tuition revenue (how much less would depend on the size of the average Pell grant at Harvard). And tuition represents a relatively small fraction of Harvard total revenue. Do we really think that 3% is the tail wagging the tuition dog, such that Harvard “games” its tuition policy so as to reap maximum benefit from that 3+/-%? That just seems really, really doubtful to me.</p>
<p>Of course, the authors might respond they’re talking about all private colleges on average, not necessarily Harvard which in important ways is an outlier. But then my question would be, what evidence do we have that the more pedestrian private colleges out there–say a Concordia Univeristy in Saint Paul, MN, a fine institution in many ways, I’m sure, but not exactly top-of-the-charts in selectivity–is so laser-focused on maintaining and enhancing educational quality, as opposed to more pedestrian goals like, say, keeping the doors open and the lights on and making payroll? In which case it might actually behave more like a profit-maximizing institution, seeking to maximize tuition revenue even at the expense of educational quality, for the sake of staying in business. </p>
<p>As for public universities, I think the authors of the study completely ignore or assume away the fact that there are tiers of selectivity and quality. I suspect many of the more highly regarded public universities act more like top privates, in that their goal is to maximize educational quality and reputation rather than serving as many state residents as they can. Yes, they typically are constrained by their own policies if not by state law to enroll relatively large numbers of in-state students, but the wealthiest of them could expand enrollment beyond its current levels if that was their priority, yet they decline to do so for fear of diluting educational quality. Lower-tier and less selective public universities seem more inclined to expand if there is demand and the money to pay for it. Lumping them all together does something of a disservice, though to some extent that’s what all models do, they abstract away nuance, context, and individual differences in favor of elegance.</p>
<p>“Lumping them all together does something of a disservice, though to some extent that’s what all models do, they abstract away nuance, context, and individual differences in favor of elegance.”</p>
<p>I question whether one can attain “elegance” without “nuance”, “context” and “individual differences.”</p>
<p>If the Pell increase amounts to dollar-for-dollar cost shifting from the college to the federal government, allowing the college to invest a high percentage of the savings into enhanced educational quality, I’m for it. Raise Pell Grants more, in that case. But what enhancements does the increased tuition revenue actually buy?</p>
<p>What type of “private college” are we talking about?</p>
<p>My d. attended one of the elite privates that claims to meet 100% need of its students – some years she was Pell-eligible, others she wasn’t – but the need was calculated using the same formula from one year to the next. If my d. was eligible for Pell, then her school-based grant was adjusted downward to compensate – no Pell – more money from the school.</p>
<p>So for that type of private college, Pell eligibility is important within their own financial aid budget, as it frees up funds that can be disbursed to other students – but it means nothing to the individual student. Any student who is Pell-eligible by definition doesn’t have a prayer of attending the pricy private without substantial aid, and if the college meets 100% need, then the student is going to get that money whether or not they are Pell eligible. </p>
<p>On the other hand, there are colleges that don’t guarantee to meet full need and encourage their students to take out large loans to attend – perhaps for those colleges, extra Pell dollars could be an incentive to raise their tuition, if one assumes the amount that students are willing and able to borrow remains constant.</p>
<p>Businesses respond to incentives even more rationally than consumers do.</p>
<p>This is no different than the mess the govt created with all of the Mortgage incentives- you provide a lot of money, businesses will maneuver to exploit it. They’d be foolish not to as a going concern. It’s no different than limiting tax liability, its just on the revenue side.</p>
<p>The authors of the paper would agree with you, up to a point. But the tuition increase is pretty modest–a $440 increase in tuition for each $2,000 increase in Pell grants, per the authors’ model. And since there have been precious few $2,000 increases in Pell grants (possibly none in real dollars as opposed to nominal dollars, given general rates of inflation in the higher education sector), and there have been frequent and numerous increases in tuition far in excess $440 per year, you can be darned certain that increases in Pell grants are not a major driver of tuition increases. If you’re taking it in the shorts on tuition, look for another causes, because it sure ain’t Pell grants that are doing the bulk of the damage.</p>
<p>Yet despite driving tuition slightly higher, the model predicts the net cost of a private college will come down (on average) with a Pell grant increase. How could that be? Well, because increased Pell grant revenue plus increased tuition revenue made possible by the Pell grant increase will allow some private colleges to deny admission to some high-income but lower-ability students who they were admitting only for the tuition. This makes it possible for private colleges to admit more high-ability middle-income students, in place of rich dunderheads. So yes, if you’re the full-pay parent of a lower-ability student who, absent the Pell grant increase, would have gotten into a better college because that college needed the money, then yes, the model says you’ll be hurt. And even if you’re the full-pay parent of a high-ability student and you elect to send your child to a private college that doesn’t give merit aid, yes, you’ll pay slightly higher tuition–though ultimately (the model would say) it’s your choice not to go for the merit money. But the vast majority of your tuition increases are not attributable to Pell grant increases. So I don’t think it’s worth getting exercised about.</p>
<p>Right, but as a full pay parent, I don’t begrudge efforts to help those with less also attend college. That’s the distinction between me and people like Beliavsky. I’m delighted when it is made possible for lower income kids to be educated. My world isn’t just limited to my own children.</p>
<p>It’s not “gaming”. This is what happens any time any federal entitlements or funds are out there for the takings. It’s hit a truly dangerous point with the whole disability situation.</p>
<p>I see gaming in other ways. I have tutored kids at a state university who are barely literate. The school gets the Pell grant and state grant for the one or two years the student attends, with no chance whatsoever of passing the required writing proficiency exam at the end of sophomore year, let alone graduating. Many of my tutees made amazing progress, or simply had not yet learned enough English, but there were several who, it seemed to me, were being hurt (exploited?), not helped, by access to college. One was a mother of 6 who made huge sacrifices to go to school, but honestly could barely write at a 3rd grade level.Yet she was admitted, and the whole time, I suspected that her attendance somehow meant money for the school. The real answer would have been for the child care assistant jobs that this student wanted so very badly, NOT to require a college degree, for heaven’s sake.</p>
<p>More recently I have looked into various “adult learner” programs. These programs, even at somewhat reputable campus colleges, seem to have very low admissions selectivity and their online courses use adjunct professors who must teach 100 students and probably work at McDonald’s to make ends meet. I am not going to name names but the teaching quality is abysmal and the level of student discussion even worse. These schools are marketing getting a degree that won’t really help employability without ability. Again, the colleges get Pell grants and state grants, pay adjuncts a bare minimum, and make money, I suspect.</p>
<p>These “adult learner” programs market and pursue students like crazy. That cannot be altruism. And the money they seek depends on the cultural pressure to “get a degree” and “have better career opportunities” rather than quality. The whole thing is exploitative. I think people should have a right to NOT go to college and still get a job.</p>