Student Loan Subsidies Cause Almost All Of The Increase In Tuition by Alex Tabarrok, Foundation For Economic Education
In a new NBER paper, "Accounting for the Rise in College Tuition," Grey Gordon and Aaron Hedlund create a sophisticated model of the college market and find that a large fraction of the increase in tuition can be explained by increases in subsidies.
With all factors present, net tuition increases from $6,100 to $12,559. As column 4 demonstrates, the demand shocks — which consist mostly of changes in financial aid — account for the lion’s share of the higher tuition.
Specifically, with demand shocks alone, equilibrium tuition rises by 102%, almost fully matching the 106% from the benchmark. By contrast,...
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