A basic tenet of economics holds that the more money you make available for something (of finite supply), the more that “something” is going to cost. In this case, that “something” is college tuition.
Enter a new study from the New York Fed. Researchers found that increasing the availability of student loans and grants has — shockingly! — caused college to become more and more expensive. (Somewhere out there is a guy who’s mentioned this before.)
New York Fed: Credit Supply and the Rise in College Tuition…
The fun part of the PDF, for me, is Section 5 (page 21), where this little tidbit is found:
Changes in sticker-price tuition have a coefficient of 0.40 on the change in Pell Grant amounts (column 1) and this effect is significant at the 5% confidence level. The economic magnitude of this coefficient is large and implies that a dollar increase in Pell Grants going to an institution is associated with a higher sticker price tuition of about 40 cents. The effect of an increase in subsidized loan amounts is higher, at about 63 cents on the dollar, and this effect is estimated to be statistically significant at the 1% confidence level. Finally, we see the effect of a change in unsubsidized loan amounts on sticker price tuition to be smaller at about 25% but still highly significant.
All this talk of coefficients makes my head hurt, but I think I get the drift: The more money that FedGov throws at colleges, the more colleges will find ways to take it. Ergo, annual tuition increases of 5 or 10 percent, and more. (Current and future higher-ed students “take it,” too, but in a very different, X-rated manner.)
The point estimates suggest that the pass-through of increased student aid supply to tuition is around 50 cents on the dollar, on average, although with some heterogeneity. …Wefind a sensitivity of changes in tuition to changes in subsidized loan amounts on the order of about 60-70 cents on the dollar, with estimates that are highly significant in essentially all of the specifications considered.
So if you want to see college tuition rates get jacked up even more, year after year, just make more loans and grants available. Especially subsidized loans — those things are the ooey-gooey candy that just never runs out. (If you’re a college, anyhow.)