The Bennett Hypothesis Turns 30

For nearly 50 years, the cost of higher education has risen faster than the pace of inflation, with federal student aid contributing to increasing tuition. In 1987, Secretary of Education William J. Bennett penned a "New York Times" article, "Our Greedy Colleges," in which he wrote, "If anything, increases in financial aid in recent years have enabled colleges and universities blithely to raise their tuitions, confident that Federal loan subsidies would help cushion the increase." This paper synthesizes empirical findings from 25 articles published in peer-reviewed journals or by respected economic research institutions since 1987. The studies focus on empirical evidence for Bennett's theory. Of the 25 studies, a majority found some effect of federal subsidies on the price of higher education in at least one segment of the higher education market. This paper makes policy recommendations to help slow the growth of university tuition and fees, including: (1) Eliminate Graduate and Parent PLUS loans (the types most likely to drive tuition increases); (2) Focus on Pell Grants instead of loans; (3) Change the student aid eligibility formula; (4) End subsidies for federal student loans; and (5) Cap the growth of tuition and fees at public colleges and universities.