A newly released study confirms a basic tenet of economic thought — subsidies result in higher prices.

A staff report by the Federal Reserve Bank of New York concludes that “institutions that were most exposed to these aid [large federal policy changes between 2008 and 2010] ahead of the policy changes experienced disproportionate tuition increases around these changes.  We find a passthrough effect of Pell Grants and subsidized loans on sticker price tuition of about 55 and 65 cents on the dollar, respectively”.

The authors speculate whether the aid in question helped or hurt the target student populations.  Certainly the institutions themselves benefited, with the authors citing their results as consistent with a 2007 study showing increases in Pell Grants are “captured by increased tuition at private universities and out-of-state students at public universities”.

The study also concluded that the increase tuition impact was most pronounced in expensive, private institutions.

The study indicates that average undergraduate tuition doubled between 2001 and 2012, and used a number of regression models to examine correlation between credit expansion and tuition prices during that time span.  The authors used three different data sources from the Department of Education, including a restricted use student-level National Postsecondary Student Aid Survey (NPSAS) dataset which compiled data across 1340 institutions.  

The authors limited their research to this topic, but speculated about the general applicability of credit to asset prices in recent “bubbles”, but stopped short of calling the phenomenon a higher education bubble.

The study also attempting to measure how much the increased aid changed enrollments.  While Pell Grants had a small effect, the authors conclude finding no increased enrollments due to loans.