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Here’s the Real Reason College Tuition Keeps Increasing

This week seems to be the conservative “I told you so” week. As predicted, minimum wage hikes led Chipotle to raise its prices to offset labor costs in San Francisco, and now economists have concluded that subsidizing college tuition leads to increased tuition costs.

The Washington Examiner reports:

Increasing federal student aid leads colleges to raise tuitions, offsetting the benefit to students, according to new research published by economists with the Federal Reserve Bank of New York. The new analysis finds that the majority of an increase in subsidized student loans or grants translates to higher tuitions, and that at least in the short run, added loans do not boost enrollment.

“[W]hile one would expect a student aid expansion to benefit recipients, the subsidized loan expansion could have been to their detriment, on net, because of the sizable and offsetting tuition effect,” write David Lucca and Karen Shen of the New York Fed and Taylor Nadauld of Brigham Young University.

The study is evidence in favor of the so-called “Bennett Hypothesis,” formulated by Reagan Department of Education Secretary William Bennett, that increases in government student aid allow universities to “blithely” increase tuition without losing students. It is one of the few such data points in the ongoing debate over federal policy and the $1.1 trillion plus in aggregate U.S. student debt that has accumulated as tuitions have soared.

The researchers find specifically that a dollar of added Pell Grants or an added dollar of subsidized direct loans translate to 55 cents and 65 cents in higher tuition, respectively.

This study confirms a longstanding conservative belief that colleges and universities will simply manipulate government-backed student aid, raising their prices and increasing their bottom line because they know the government will have to increase their aid funding to keep up. The federal government is enabling unaffordable education and creating a bubble in higher education not unlike the housing market, and sooner or later, it’s going to have to pop.

Deneen Borelli

Deneen Borelli is the author of Blacklash: How Obama and the Left are Driving Americans to the Government Plantation. Deneen is a contributor with Newsmax Broadcasting. She is a former Fox News contributor and has appeared regularly on “Hannity,” “Fox & Friends,” “Your World with Neil Cavuto,” and “America’s Newsroom.” She has also appeared on Fox Business Network programs “Making Money with Charles Payne,” “The Evening Edit with Liz MacDonald,” and “Cavuto: Coast to Coast.” Previously, Deneen appeared on MSNBC, CNN, the BBC and C-SPAN. In addition to television, Deneen co-hosted radio programs on the SiriusXM Patriot channel with her husband Tom. Recently, Deneen co-hosted the Reigniting Liberty podcast with Tom. Deneen is a frequent speaker at political events, including the FreedomWorks 9.12.2009 March on D.C. which drew a crowd estimated at over 800,000 people. Deneen is also an Ambassador with CloutHub.com, a social media platform that promotes free speech, and with the America First Policy Institute (AFPI) which advances policies that put Americans first. Deneen testified before the U.S. House of Representatives Committee on Natural Resources in May 2011 and before the Ohio House Public Utilities Committee in December 2011. Previously, Deneen was a BlazeTV.com host, Outreach Director with FreedomWorks.org overseeing its Empower.org outreach program, a Project 21 Senior Fellow, and Manager of Media Relations with the Congress of Racial Equality (CORE). Prior to joining CORE, Deneen worked at Philip Morris USA for 20 years. During her corporate career at Philip Morris she worked in various positions, her last as Project Management Coordinator in the Information Management department where she was responsible for the department’s mandated quality processes, communications, sales information and database management. Deneen began her Philip Morris career as a secretary and advanced to positions of increasing responsibilities. Deneen worked full-time and attended classes at night for 11 years to earn her B.A. in Managerial Marketing from Pace University, New York City. Deneen served on the Board of Trustees with The Opportunity Charter School in Harlem, New York. She appeared in educational videos for children, worked as a runway fashion model, and auditioned for television commercials. Her interests include ancient history, pistol target shooting, photography, and volunteering at her church. Deneen currently resides in Connecticut with her husband Tom.

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