For a few years, I have been posting an evolving list of empirical studies that have found that federal student aid programs help fuel rampant college price inflation. Why? Because I continually encounter people, often who work for or in higher education, who insist that there is no meaningful empirical evidence of big subsidies enabling big price increases, even if the possibility makes mammoth intuitive and theoretical sense.
A few days ago a new entry arrived for the list, a paper from the Federal Reserve Bank of New York. It finds that student loans have big inflationary effects, especially at four-year private schools not focused on top academic performers, and that Pell Grants have smaller direct effects, but also likely lead to reductions in aid funded by institutions. It is yet one more study that shows that, contrary to the hopes of the American Council on Education–the premiere higher ed advocacy group–the inflationary effect of student aid is absolutely a subject that should “play a major role” in discussions about college affordability.
Read more at http://www.cato.org/blog/yet-more-empirical-evidence-yes-federal-student-aid-fuels-college-price-inflation
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