Study Finds U.S. Loans Don't Inflate Professional School Tuition

Researcher concludes that increase in Grad PLUS loans did not drive up the price of medical and business schools or increase debt burden of those who enrolled.

April 24, 2019
 
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The "Bennett hypothesis" -- the subject of much debate among think tank analysts and higher ed researchers and in these pages -- holds that increases in federal financial aid give colleges and universities subsidies that "blithely" allow them to raise their tuitions. (The eponym for the hypothesis, then education secretary William J. Bennett, had a way with words.)

The belief that this is so continues to influence federal policy makers with a small-government point of view -- including members of the Trump administration who have cited it as justification for proposals to constrain certain student loan programs.

Most of the research examining the legitimacy (or lack thereof) of the Bennett hypothesis has focused on loans for undergraduates. But Robert Kelchen, an assistant professor of higher education at Seton Hall University, this week followed up a 2017 study on law schools with one exploring the impact of federal Grad PLUS loans on tuition rates and debt levels in two expensive forms of professional education: medical schools and business schools.

The study, published in Research in Higher Education (abstract here, and a prepublication version of the study here), explores the impact that a major increase in the availability of federal loans for graduate school more than a decade ago had on medical and business school tuitions and student debt burdens.

Kelchen's conclusion: not much of one at all.

"I did not find consistent evidence that either business of medical schools systematically increased tuition and fees following 2006, and this generally resulted in student debt burdens remaining on their prior trajectory," he writes. (Kelchen notes that differences appeared in his two methodological approaches to the data, but that even the largest effects he found were "relatively modest in size.")

Kelchen's primary explanation for the lack of meaningful effect on tuitions of the injection of newly available funds for students to borrow is that medical and business schools were reluctant to raise tuitions in the wake of the loan limit increases because the "optics" of doing so "would not be favorable for higher education." He acknowledges that selective business schools at public universities were somewhat more likely to raise their tuitions than were their peers at less-selective schools (public and private), many of which did not have strong student demand.

"This difference by selectivity fits the Bennett Hypothesis 2.0, which posits that selective institutions will be more able to increase tuition than less-selective institutions," Kelchen writes.

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