Study: Private Colleges Absorb Increased Student Financial Aid by Raising Tuition

Interesting paper by Larry D. Singell, Jr. & Joe A. Stone (both of the University of Oregon, Department of Economics), For Whom the Pell Tolls: The Response of University Tuition to Federal Grants-in-Aid, 4 Econ. of Educ. Rev. ___ (2005).  Here is the abstract:

The Pell grant program is the largest federal program for college students, with support to over three million students at more than six thousand institutions. A prominent question in public debate is whether Pell grants tend to be appropriated by universities through increases in tuition – consistent with what is known as the Bennett hypothesis. Based on a panel of 1554 colleges and universities from 1989 to 1996, we find little evidence of the Bennett hypothesis for in-state tuition for public universities. For private universities, though, increases in Pell grants appear to be matched nearly one for one by increases in list (and net) tuition. Results for outof- state tuition for public universities are similar to those for private universities, suggesting that they behave more like private ones in setting out-of-state tuition. Institutional responses in these latter cases appear at odds with federal grants-in-aid policy.

From today's Chronicle of Higher Education:

Mr. Singell and Mr. Stone found that public colleges’ tuition for in-state students did not rise in tandem with Pell Grant levels. But private colleges’ tuition, and public colleges’ out-of-state tuition, increased by roughly $800 for every $1,000 increase in Pell recipients’ average grants.