<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>