Federal Financial Aid Policy and College Behavior

This monograph by Robert B. Archibald and David H. Feldman finds little evidence that increases in federal financial aid drive up college tuition, and that institutions rarely rely on federal aid as a rationale to give out less of their own institutional aid.The authors use the so-called Bennett Hypothesis as the launching pad for their analysis. First advanced by William Bennett, secretary of education in the Reagan administration, the theory suggests that the availability of federal student loans, particularly subsidized loans, provides “cover” for institutions to raise tuition because students can offset any price increase with these loans. However, they find no evidence for this link for most institutions.