Rising college costs: 2 studies

[OHMomof2]

I recently read two studies on rising college costs and since i hadn’t seen them here (might have missed), I thought I’d put them here for y’all to see. They both react, or refer to, the “Bennett Hypothesis”.

http://fee.org/articles/student-loan-subsidies-cause-almost-all-of-the-increase-in-tuition/ - article links to actual study at http://www.nber.org/chapters/c13711.pdf

This one basically concludes

Falling within our notion of supply-side shocks, state and local funding for higher education
fell from $8,200 per full-time-equivalent (FTE) student in 1987 to $7,300 in 2010, all while
underlying costs and expenditures were rising. Several studies, including a notable study
commissioned by Congress in the 1998 re-authorization of the Higher Education Act, attribute
a sizable fraction of the increase in public university tuition to these state funding
cuts. We take a somewhat broader view in this paper by looking at how exogenous changes
to all sources of non-tuition revenue impact the path of tuition.

On the demand side, several expansions in financial aid have occurred over the past several
decades. During our period of analysis, annual and aggregate subsidized Stafford loan
limits were increased in 1987 and five years later in 1992. The Higher Education Amendments
of 1992 also established a program of supplementary unsubsidized Stafford loans and
increased the annual PLUS loan limit to the cost of attendance minus aid, thereby eliminating
aggregate PLUS loan limits. Interest rates on student loans also fell considerably during
1Calculations used the health care personal consumption expenditures price index.
2
the 2000s. In a famous 1987 New York Times Op-Ed titled “Our Greedy Colleges”, then
secretary of education William Bennett asserted that “increases in financial aid in recent
years have enabled colleges and universities blithely to raise their tuitions” (Bennett, 1987).
We evaluate this claim through the lens of our model, and we also cast light on the tuition
impact of the 53% rise in non-tuition costs (such as those arising from the greater provision
of student amenities), which has the effect of increasing subsidized loan eligibility.
Lastly, we quantify the impact of macroeconomic forces—specifically, rising labor market
returns to college—on tuition changes. Autor, Katz, and Kearney (2008) find that, from the
mid-1980s to 2005, the overall earnings premium to having a college degree increased from
58% to over 93%. Ceteris paribus, such an increase in the return to college has assuredly
driven up demand for a college degree. We use our model to quantify how much this increase
in demand translates to higher tuition and how much it contributes to higher enrollments.

Our quantitative findings can be summarized as follows:

1. The combined effect of the aforementioned shocks generates a 106% increase in equilibrium tuition. This result compares to a 78% increase in the data.
2. The rise in the college earnings premium alone causes tuition to increase by 24%. With all other shocks present except the college premium hike, tuition increases by 87%.
3. The demand-side shocks by themselves cause tuition to jump by 102%. With all other changes except the demand-side shocks, tuition only increases by 16%.
4. The supply-side shocks by themselves cause tuition to decline by 6%. With all other changes except the supply-side shocks, tuition increases by 122%.

Then there is this article: http://college.usatoday.com/2015/08/20/report-federal-aid-rising-tuition/ about this study by the US Treasury: http://www.newyorkfed.org/research/staff_reports/sr733.pdf

These results,
which are identified through cross-sectional exposures to the changes in student federal aid
programs between 2007 and 2010, provide support to the Bennett Hypothesis. The point
estimates suggest that the passthrough of increased student aid supply to tuition is around
50 cents on the dollar, on average, although with some heterogeneity.

---

In sum, we find a passthrough of federal aid in the form of Pell grants and subsidized
direct loans and a much weaker effect on unsubsidized loans. This weakness may be due
to limitations to our identification approach as well as other factors such as the contemporaneous
contraction in the private student loan market over the year in which the cap
change was implemented.

Both suggest that federal aid in the form of Pell and loans account for most of the rise in college costs.

What do you think?

[ucbalumnus]

@OHMomof2

Both suggest that federal aid in the form of Pell and loans account for most of the rise in college costs.

That may be significant for in-state public tuitions, but those amounts are quite small compared to private school tuitions.

Also, Pell grant amounts fell (on a CPI inflation-adjusted basis) from 1976 to 1996, before rising again until 2002. When compared to college cost inflation, Pell grant amounts have generally fallen from 1976 to 2006.
http://www.finaid.org/educators/pellgrant.phtml
http://www.acenet.edu/news-room/Documents/FactSheet-Pell-Grant-Funding-History-1976-2010.pdf
https://www.lanecc.edu/sites/default/files/budget/financial_aid_award_levels.pdf
So it cannot be only Pell grants that are contributing the the cost increases.

[OHMomof2]

Thanks ucb, I hoped you’d comment.

Both studies seem to count PLUS loans. The first for sure, the second I think does.

Both studies also looked at ALL nonprofits, both public and private (why they skipped for-profits is anyone’s guess…)

[SOSConcern]

Dave Ramsey just said that college costs are increasing an average of 7.2% based on statistics over the last 50 years. I think using that projection for private schools; the publics maybe figure 5% increase a year.

Some states do have legislature having more control over cost increases.

In most cases, IMHO, investments cannot keep up with college cost increases - that is why our state college tuition program had to be frozen at an earlier year tuition level, so the program would not run out of money.

[cellomom2]

I read a very interesting book about 3 months ago called “Paying the Price” that was about an in depth study that was done in WI following all pell grant recipients that started at WI public institutions in 2008 I believe. It was a dense book and there was a lot of information in it. If I recall correctly, there was a section that analyzed the connection between rising college costs, pell grants, changes in state funding from about the 1960’s to the present and the rising costs more closely aligned with declines in state funding than increases in federal aid/ pell grants.

[Zinhead]

Both suggest that federal aid in the form of Pell and loans account for most of the rise in college costs.

Greedy administrators are the biggest reason why college costs have risen at twice the rate of inflation over the past two generations.