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Does Financial Aid Lead to Higher Tuition? or Where There’s Smoke There’s Fire

Posted on May 11th, 2011, by 1 Comment

Imagine there is a forest ranger tasked with determining if there is a forest fire. What would you think of the soundness of their judgment if they looked at this

and concluded that there was no danger on the grounds that it doesn’t look like this:

Most of us would conclude that this forest ranger is leading us dangerously astray. Most of us would be able to deduce that there is very likely a fire upon observing smoke even if we don’t actually see flames.

Twice in the past month I have encountered higher ed establishment types that act like the forest ranger above when it comes to the Bennett Hypothesis – the idea that financial aid programs fuel tuition increases. The first will remain nameless, as the event it occurred at was off the record, but the second is Terry W. Hartle who boldly declares

he has fallen victim to one of the most persistent and pernicious myths of higher education—that increases in federal aid drive up the cost of college.

The unnamed and Hartle are right about one thing, there are not flames directly in front of us. Virtually everyone who has looked at the issue fails to verify the Bennett Hypothesis. But what they never mention is that virtually no one who has looked at the issue can convincingly reject the hypothesis either.

A representative sample from the literature:

McPherson and Schapiro

“We found no evidence of the “Bennett Hypothesis,” [at private institutions]… We did, however, find that public four-year institutions tended to raise tuition by $50 for every $100 increase in federal student aid.”

Rizzo and Ehrenberg

“Estimates of the size of this “Bennett Hypothesis” at public institutions range from negligible to a $50 increase in tuition for every $100 increase in aid.”

Long

“Of the many studies that have tried to identify whether colleges react to federal financial aid, most find little to no response. While several studies do find a college price response, their overall results are mixed and often contradictory.”

Singell and Stone

“Previous studies with evidence pertinent to the Bennett hypothesis are suggestive. McPherson and Shapiro (1991), Turner (1997), Li (1999), Netz (1999), Acosta (2001), and Long (2002) all find evidence that tuition rises for at least some segments of the higher education market”

Curs and Dar

“we find that higher education institutions raise net-price and lower their average institutional financial aid award when their states increase need-based awards, and indication that they are capturing increased state financial generosity.”

In other words, while there are not flames directly in front of us, there is a lot of smoke. Faced with this situation, you can do two things.

1) Declare that fires can only occur when you see them directly in front of you and simply ignore the smoke all around us. This is what the unnamed and Hartle do.

2) Compare the smoking forests to unsmoking forests in search of explanations for why we keep finding smoke.

2 seems like the only reasonable option to me, but 1 exerts an irresistible pull on many people. The people who choose option 1 keep testing the original Bennett Hypothesis, and keep finding mixed and contradictory results (and often inexplicably concluding that mixed results prove that there is no truth to the Bennett Hypothesis, going so far as to call the idea stupid).

The people who choose 2 view the mixed results and conclude that the original Bennett Hypothesis cannot adequately explain reality, but that there seems to be enough truth to it to warrant searching for new theories that might do a better job. These new theories could be variations on the original or entirely new ones. For instance, I previously laid out what I will now start calling the Bennett Hypothesis 2.0 to drive home the point that it is different from the original. The details can be found here,

Specifically, aid will fuel increases in spending when it is given to students whose ability and willingness to pay is in excess of current costs at the school. Because costs and ability to pay vary by school, this implies that a much more nuanced view is warranted. The same aid program can have different effects based on the characteristics of the school and the students attending… Thus, lumping all federal aid together when analyzing its impact, or even all aid of a given type, is unlikely to yield accurate results…

Now it is certainly possible that we’ll find Bennett Hypothesis 2.0 unsatisfactory too. Indeed we might go all the way out to Bennett Hypothesis 15.7 before either finding a variation that explains the patterns we observe, or finding alternative theories that do a better job. But given the mixed evidence, we shouldn’t jump to premature conclusions, just like a forest ranger shouldn’t ignore all the smoke and declare an area safe just because he can’t see the actual flames.

In sum, the original Bennett Hypothesis does not hold, but those that repeatedly declare this often ignore all the fragments of evidence that there is some truth to the idea. Whether by sins of omission or commission, they lead us astray with the certainty with which they express these views. The appropriate response when faced with mixed evidence is not to declare the idea dead and buried, but to explore more deeply both the idea and alternatives to try and figure out why the evidence is mixed.

  • Jane S. Shaw

    Brilliant, Andrew! Jane.