Warren’s debt-free college plan has been positively received by many on the left. On the right, however, there’s been a good deal of criticism that has made reference to the Bennett hypothesis. Neal McCluskey, director of the nonprofit Cato Institute’s Center for Educational Freedom, worries that Warren’s Pell grant and public institution funding might “just keep fueling the sticker-price skyrocket.” Similarly, in her critique of Warren’s plan, Mary Clare Amselem of the Heritage Foundation, a conservative think tank, writes that “[s]chools have no incentive to lower tuition, because generous federal subsidies have created, effectively, unlimited access to loans and grants.”
Of course, if the Bennett hypothesis is true, it has dire implications for Warren’s plans, particularly her proposal to expand Pell grant aid. Researchers have been attempting to determine if federal financial aid is contributing to inflation in the cost of college for a while now. The evidence is mixed but on balance seems to suggest that it depends on both the type of institution and the type of aid. Most strikingly, in a paper published in the American Economic Journal in 2014, economists Stephanie Riegg Cellini and Claudia Goldin compared tuition among for-profit institutions eligible for federal financial aid to tuition at institutions that are not eligible for such aid.
“We found very large differences in tuition,” Cellini tells me. “Specifically, tuition at eligible institutions was 78% higher for similar programs. Even within the same institutions, at programs that are barely eligible and not eligible, tuitions for programs that got aid were a little bit higher.”
Studies looking at higher education more broadly have found a great deal of variation in responses to federal aid. In a staff report published in 2015, researchers at the Federal Reserve Bank of New York analyzed how increases in federal student loan maximums affected tuition at a range of different institutions. The researchers found that increases in institution-specific subsidized loan maximums led to tuition increases of about 60 cents per dollar. Those researchers also found “abnormally large tuition increases” in the for-profit sector.
It’s not quite clear, however, what the lessons of either of those papers is for Warren’s Pell grant proposal. Warren proposes ultimately banning for-profit institutions from receiving any federal aid at all, and most researchers believe loans are much more likely to produce inflation than Pell grants. In fact, the most informative research for the purposes of evaluating the potentially inflationary effects of Warren’s proposal is a paper by Lesley Turner, an economics professor at the University of Maryland.
“Public and community colleges are under tremendous resource strain.”
Turner set out to study the related question of whether institutions are “capturing” Pell grant aid. She found that, on average, institutions capture about 15 cents of Pell grant aid that students receive. (At public institutions, Turner found no net response.) “The very bottom line here is outside of the for-profit sector, Pell grant aid is doing a good job of reaching the students that it’s targeting,” she says.
By and large, the economists I spoke to viewed the Pell grant as likely a good vehicle for delivering much-needed additional financial support to low-income students, particularly nontraditional students.
“I do think it’s important to have more support available to low-income students,” says Melissa Kearney, an economics professor at the University of Maryland. “This is going to be especially important when your typical college student is not an 18-to-22-year-old who is financially dependent on their parents. The share who are going to be middle-aged and have a family to support is increasing, and they’re going to need to have access to cash.”
“Letting students keep their Pell grants and making sure that Pell grants are generous enough is really important,” says the Urban Institute’s Baum. “This part of the proposal stands on its own.”
While Warren’s proposal to expand the Pell grant got high marks among the economists I spoke with, her free tuition proposal received a mixed reception. Kearney, the Maryland professor, worries that Warren’s proposal doesn’t address the biggest problem facing higher education right now: low completion rates, driven in part by under-resourced public institutions. Free tuition doesn’t solve the supply-side factors that are making it difficult for students to complete high-quality programs.
“Right now, the majority of college-ready high school graduates are going to college, and the completion rates are just really low,” Kearney says. “What we need to be doing is developing the capacity of the supply side. Public and community colleges are under tremendous resource strain. We really need to increase the capacity of these institutions.”
Scott-Clayton, the Columbia professor, agrees. “We would be using all of these resources to basically replace the amount that private individuals previously were spending on higher ed,” she explains. “That means at the end of the day, nothing has changed from the institution’s perspective. They’re not able to do anything more than they were able to do before.”
Scott-Clayton worries that an influx of students into public institutions, without additional resources for those institutions, could actually dilute resources for students, worsening completion rates.
“The consumer parallel is that basically all the investment is just going to lower the cost and none of it is going to improving quality,” Scott-Clayton says. “You’ve got free — but free what?”