Written by: Donald Heller
Primary Source: The Deans Blog
This week’s New York Times contained a piece by economics columnist Eduardo Porter titled “Why Aid for College is Missing the Mark.” In the article, Porter argues that the “Bennett Hypothesis” – the assertion first made 27 years ago by former Secretary of Education William Bennett that increasing federal subsidized loans leads to rises in tuition prices – is the primary culprit behind the well-documented increase in tuition prices across the country over the last few decades. As Porter puts it, “Nearly two decades later, it seems, he was broadly right. Indeed, [Bennett] didn’t know the half of it.” Powerful words, but the problem is that Porter is in large part wrong regarding what Secretary Bennett actually said, as well as in his interpretation of the current situation.
The first problem with Porter’s column is that he misconstrues what Bennett actually wrote. Porter is writing about the impact of all federal financial aid, including Pell Grants (a $33 billion program). He describes a recent U. of Maryland study that found a relationship between Pell Grants and institutional grant aid. Bennett’s focus, however, was primarily on the impact of federal subsidized loans on tuition prices, writing:
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.
Last year I wrote a policy brief for the American Council on Education (ACE). The brief, “Does Federal Financial Aid Drive Up College Prices?” examined the research that has been conducted on this question in the ensuing quarter century since Secretary Bennett made this assertion. After reviewing more than two dozen studies, I concluded that the evidence for the Bennett Hypothesis was weak, even if one expands it to include all forms of federal financial aid.
While the Bennett Hypothesis may be intriguing, there is little compelling evidence that it holds true with respect to the price-setting behavior of colleges and universities in the United States. This complex process involves far too many variables for it to be essentially explained by the simplistic notion that tuition-setting boards sit around and say, “Well, Pell grants are going up $200 next year, so we can raise tuition $100.” While any change in federal aid may be a very small piece of the puzzle that leads to year-to-year tuition increases, there is scant evidence that it is a major contributing factor.
Porter mentions in his column that state funding for public higher education institutions across the country (where over three-quarters of all undergraduate students enroll) fell by 30 percent on a per-student basis over the last decade. But he never points to this as a reason for the rise in tuition prices in the public sector. A U.S. Department of Education study that I describe in my ACE brief – probably the most comprehensive attempt to address the question of rising tuition prices – points to the role of state appropriations in determining tuition prices. The study found that the change in state funding was by far the strongest predictor of tuition prices in the public sector, and it found no relationship between federal and state aid – grants or loans – and tuition prices in either the public or private nonprofit sectors.
Porter makes other misleading statements in his column. He wrote, “It [the U.S.] has the most expensive higher education in the world: $26,000 a year, on average.” Porter doesn’t cite a source for this statistic, but it is well above reality. The College Board’s Trends in College Pricing Report, generally recognized as the authoritative source on college prices, found that in the 2013-14 school year the median tuition price paid by students at 4-year institutions (public and private nonprofit combined) was $11,093. Even if you look at the mean price, it is only about $17,000. And these averages don’t include the 38 percent of all undergraduates who are enrolled in community colleges, where tuition prices are much lower.
Perhaps rather than talking about tuition prices, Porter was using the cost of attendance, which includes room, board, books, transportation and other college-related expenses (it is impossible to tell from his post what he is including in the $26,000 figure). But including these additional charges beyond tuition, and including community college students, you still do not get near $26,000. And later in his post, Porter draws an analogy between the prices at American universities and those at British universities, where the maximum tuition price (not including room and board) is £9,000 (approximately $15,000). So it appears that his $26,000 price refers to tuition alone.
Porter points to the United States’ lagging performance in college graduation rates using data from the Organisation for Economic Co-operation and Development as another indicator of the failures of the American higher education system. Comparing the growth of postsecondary attainment rates (which he mistakenly labels “graduation rates”) in the U.S. and other countries, he writes:
In 2012, 44 percent of 25- to 34-year-old Americans had a college degree, whether from a community college or an ivy league university, 6 percentage points more than in 2000. By contrast, the college graduation rate of young Britons rose by 19 percentage points over the period, to 49 percent. In the O.E.C.D. as a whole it increased to 40 percent, 14 percentage points more than in 2000.
He neglects to note that there is likely a ceiling effect at work, as the United States had a higher attainment rate in 2000 than these other countries. When you start with a higher attainment rate, it is harder to make the same percentage point gains as a country that starts lower. In 2000, the U.S. had an attainment rate of 38 percent, while Great Britain’s was 29 percent (Porter had Great Britain’s 2012 rate wrong; it is actually 48 percent according to the OECD data).
Even with these errors, there are still some important points in Porter’s column. He is correct that we will only increase our educational attainment rates if we focus on the needs of low- and moderate-income students. The United States must do more to ensure college access and success for these students. And there does need to be more quality assurance over higher education, particularly in the for-profit sector where many institutions are plagued by low completion rates and high loan default rates (the public and private nonprofit sectors are not immune from this problem either). And the relationship between federal aid and tuition prices appears to be strongest in the for-profit sector, an issue that should be addressed. But points like Porter’s can best be made when supported by realistic data and assertions.
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