Newswise — A comprehensive University of Oregon study of tuition patterns over eight years at 1,554 U.S. colleges and universities has found evidence both for and against claims that increases in the amounts of federal Pell grants drive up the cost of higher education.
Overall, the researchers concluded, Pell grants are doing what they were designed to do, which is help boost college enrollment by improving access for those with limited financial resources. Some 3 million students at more than 6,000 institutions receive the grants. However, a growing number of critics, including several former U.S. education secretaries, have argued that Pell increases are simply appropriated by universities through tuition hikes. The most outspoken has been William J. Bennett, who headed the department from 1985 to 1988.
The Bush Administration has announced that its 2008 budget will recommend raising the maximum Pell grant to $4,600, a 14-percent increase. The maximum grant had been $4,050 since 2002, but the U.S. House of Representatives last month increased it by $260 for the rest of 2007.
The new study by two UO economists found that generally students eligible for Pell grants are getting better access to higher education, as intended, but that wealthier students are likely being required to pay more at private and out-of-state public institutions, both of which appear to be redistributing their tuition formulas to balance the playing field.
Undergraduates at in-state institutions were not significantly affected by tuition increases linked to rises in Pell grants between 1989 and 1996, economists Larry D. Singell Jr. and Joe A. Stone report in a paper to appear in the journal Economics of Education Review. The study is available online.
"For private colleges, the response to Pell grants is no different from their approach to tuition pricing and awarding of differential scholarships to students based on need," said Singell, head of the UO department of economics. "So we are not much surprised by our findings. We were also not surprised to find no significant effect for Pell grants on residential tuition at public colleges."
Some students, whose families' incomes make them ineligible for Pell, have faced tuition hikes that sometimes match almost one-to-one any dollar increases in Pell grants when they enroll at out-of-state public institutions or private schools. However, rather than having the effect of turning away the poorer students with Pell grants, tuition redistribution allows these institutions to accommodate lower-income Pell recipients, said Stone, the W.E. Miner Professor of Economics at the UO.
"A lot of people have looked at the Bennett hypothesis," Stone said. "I think our study is the most comprehensive one in terms of the types and numbers of schools and the long time period we examined. We found that Pell increases do expand the opportunities for students entering their in-state public schools without seeing a directly related increase in tuition. For students going to private schools and non-residents going to public schools, we found that access to those schools increases, too, but it comes at the expense of higher overall tuition paid by wealthier students."
Stone and Singell used data from the Computer-Aided Science Policy Analysis and Research Database System, which the National Science Foundation uses for statistical analyses of U.S. universities and colleges. That data was merged with institution-specific Pell statistics from the Department of Education. They used statistical methods to disentangle the effects of Pell grants from other factors that influence tuition, including such factors as state funding, endowments and other unobserved differences across colleges.
Bottom-line results were that in-state public tuition has risen nationally, especially in the Midwest and Northeast. It rose by $359 per $1,000 of Pell awards in a standard statistical analysis but by just $130 per $1,000 when other effects were considered. The researchers theorized that the difference suggests that Pell grants tend to assist recipients in attending the more costly public institutions within their own states.
At public universities, out-of-state tuition went up the most in the West and Northeast, increasing at $804 per $1,000 of Pell grants. Tuition at private institutions, which get very little state support and rely more heavily on endowments, also rose, with the sharpest increases in the same regions. The rise related to Pell grants was $863 per $1,000, approaching a one-to-one effect. Stone and Singell also conclude that students who obtained larger Pell grants are drawn more to private schools with lower tuition rather than those with higher tuition.
While the private and out-of-state public schools raise their overall list tuition for students in response to increases in the size of Pell grants, it appears that there is a net decline in the tuition paid by needy students who receive the grants, the researchers concluded.
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Economics of Education Review