In 1987 President Reagan’s Education Secretary Bill Bennett said the constant increases in the costs of college are correlated to the increase in student aid. This became known as the “Bennet Hypothesis.” From the National Review:
Since the government was putting many dollars in the pockets of high-school grads which they could use only if they enrolled in an accredited college, it stood to reason that the people who ran the colleges would see the opportunity to capture many of those dollars for their own spending desires by increasing tuition and fees. While some leftists dismissed the idea (“College presidents aren’t like greedy businessmen!”) those who have carefully analyzed the connection between student aid and rising costs have largely come to the conclusion that Bennett had it right.
Now the James G. Center for Academic Renewal has studied the Bennet Hypothesis and proven it to be correct.
The theory is really just common sense. If the government gives money to students to spend on education, then students will be able and willing to spend more on that product. Universities, knowing that the funds are available, raise tuition without worrying about whether students can afford it. An ugly cycle ensues.
And now, we’re seeing the effects. The price of college tuition and fees has risen 1,335 percent since 1978: much faster than inflation and faster even than medical care (704 percent) and housing (511 percent). Too many students go to college for the wrong reasons and too few graduate. Almost 4 million students dropped out of college with debt in 2015 and 2016. Student borrowing has soared to more than $1 trillion with many graduates (and non-graduates) unable to pay back their student loans.
The author of the study, Jenna A. Robinson, looked at 25 peer-reviewed studies on the Bennett Hypothesis, concluding:
Taken as a whole, the scholarly research I examined suggests that federal student aid increases university tuition rates, perhaps by as much as 60 cents on the dollar. Of the 25 studies surveyed, a majority found some effect of federal subsidies on the price of higher education in at least one segment of the higher education market. The effect was most pronounced at for-profit institutions….
In short, student borrowing is on an unsustainable path. Understanding the Bennett Hypothesis and examining the evidence is the first step in getting back on course.
