Thursday, May 9, 2013

The Bennett Hypothesis: Why College Tuitions Are Out of Control

WaPo columnist Ezra Klein, deep in the belly of the beast, Washington D.C., does a very decent job of explaining why:
 Even the most observant policy watchers could be forgiven for having trouble keeping track of all the programs and subsidies at work.

Perhaps the most famous is the Pell Grant program, but there’s also the American Opportunity Tax Credit, the federal direct loan program for student debt, subsidized Stafford, PLUS, and Perkins loans, and the Lifetime Learning Tax Credit.[...]

But is it making college more affordable?

Some researchers argue no. In fact, they argue that government subsidies have had the perverse effect of encouraging colleges to increase tuition so as to capture more federal dollars, an effect known in the literature as the “Bennett hypothesis”. To see how this could work, imagine a school that charged $0 in tuition and fees. Suppose that the federal government then offered $5,000 vouchers to pay for college tuition, but only at schools that charge tuition. Obviously, our hypothetical free school is going to increase tuition to $5,000 a year to take advantage of that money. That’s just money on the table.

Not all colleges focus on Pell Grant-type  programs, but those that do, may still charge low income students whopping amounts above the grants.

Klein reports:

On the other end of the spectrum, there are schools that recruit a lot of poor students and then charge them gobs and gobs of money. The worst offender appears to be Mills College in Oakland, which counts Pell recipients as 48 percent of the student body but charges low-income students an average of $44,963 a year.
It’s not all bad news. The real stars of the report are liberal arts colleges like Amherst, Vassar, Grinnell, and Williams, which enroll a sizeable number of Pell Grant recipients and charge them very little.

1 comment:

  1. This reminds me of a college friend whose parents were both docs. In a meeting with the admissions staff, his parents were asked how much money they earned. When they asked why that was relevant, they were told that without that information, the school couldn't determine how much to charge them for tuition.