Is Financial Aid Really Making College More Expensive?

Financial aid, whether it's a cheap loan, a work-study job at the campus library, or a grant, is supposed to make college more affordable and accessible for students. But what if, by handing money out to undergrads, the government is simply encouraging schools to spend more and jack up tuition?

Meet "the Bennett hypothesis," the dismal notion named for Reagan Education Secretary William Bennett, who suggested it in a 1987 New York Times op-ed diplomatically titled "Our Greedy Colleges." Generous student-aid policies had "enabled colleges and universities blithely to raise their tuitions, confident that Federal loan subsidies would help cushion the increase," he wrote at the time. "Federal student aid policies do not cause college price inflation, but there is little doubt that they help make it possible."

Twenty five years of swelling tuition prices later, Bennett's critique seems to have received a stamp of bipartisan approval, courtesy of the Obama administration. It's the driving spirit behind a White House proposal that would condition a small amount of the federal financial aid that colleges distribute to students on their ability to keep a lid on costs. "We can't just keep on subsidizing skyrocketing tuition," Obama told a rally audience at the University of Michigan last month as he announced the idea.

True enough. Subsidizing skyrocketing tuition sounds like a supremely poor idea. If only it were clear what the link between student aid and college costs actually was.

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