The Bennett Hypothesis: When and Why, Not True or False

My last post on the Bennett Hypothesis (the idea that federal financial aid can lead to higher tuition) elicited a comment from “Craigie” which is worth addressing. After acknowledging that aid (GradPLUS loans) does lead to higher tuition for law schools, Craigie declares that it is “the exception that proves the rule: the Bennett hypothesis is false.” This tendency to discount mixed evidence is a common mistake. Whenever evidence in support of the Bennett Hypothesis is put forward, evidence against the hypothesis is quickly brought up (and vice versa). While annoying from a sound bite perspective, this mixed evidence is a bit of a blessing from a scientific standpoint because it allows for a deeper investigation into the relationship between aid and tuition to try and answer why the hypothesis seems to hold in some cases but not others. In other words, with mixed evidence, “Is the Bennett Hypothesis true?” is the wrong question as it has no consistent answer. The better question is “When does the Bennett Hypothesis hold/not hold and why.”

My research indicates that the key determining factors for distinguishing when the Bennett Hypothesis holds and when it doesn’t are

• who receives financial aid,
• the actions available to colleges, and
• the nature of competition in higher education.

Taking these into account yields Bennett Hypothesis 2.0 which argues that nature of competition ensures that there is always the danger that higher aid will lead to higher tuition, but that certain design features of aid programs can control this danger. In particular, the more the aid is targeted to lower income students and the lower maximum awards are, the less likely aid will lead to high tuition.

For example, the original Bennett Hypothesis would’ve predicted the same impact on tuition from an increase in Pell grants as from an increase in GradPLUS loans. But Bennett Hypothesis 2.0 predicts different effects – Pell grants are less likely to lead to higher tuition because the awards are relatively modest and are (generally) restricted to low income students. But GradPLUS loans are much more widely available and are basically uncapped, and are therefore much more likely to lead to higher tuition.

Here are the major federal financial aid programs ranked from most likely to fuel tuition increases to least likely, according to Bennett Hypothesis 2.0:

• GradPLUS loans
• PLUS loans
• Tax Benefits (AOTC, Hope, Life Time Learning, student loan interest deduction, etc.)
• Unsubsidized Stafford Loans
• Subsidized Stafford Loans
• Veterans Benefits
• Pell Grants

For policymakers, this means that listening to those who say “the Bennett hypothesis is false” will lead to disastrous financial aid program design—for example, GradPLUS. Its flawed, tuition-increasing, design only came about because policymakers didn’t take the Bennett Hypothesis seriously enough and therefore didn’t include any safeguards. The lesson from that mistake is that policymakers should assume the Bennett Hypothesis holds unless they explicitly put  safeguards (such as targeting aid to low income students or imposing modest maximum awards) in place.

Photo Credit:  Elizabethtown College Marketing and Communications