Does Federal Student Aid Raise Tuition? New Evidence on For-Profit Colleges

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Stephanie Riegg Cellini, Claudia Goldin NBER Working Paper No. 17827 Issued in February 2012 NBER Program(s):   DAE   ED   PE  We use administrative data from five states to provide the first comprehensive estimates of the size of the for-profit higher education sector in the U.S. Our estimates include schools that are not currently eligible to participate in federal student aid programs under Title IV of the Higher Education Act and are therefore missed in official counts. We find that the number of for-profit institutions is double the official count and the number of students is between one-quarter and one-third greater. Many for-profit institutions that are not Title IV eligible offer programs and certificates that are similar, if not identical, to those given by institutions that are part of Title IV. We find that the Title IV institutions charge tuition that is about 75 percent higher than that charged by comparable institutions whose students cannot apply for federal financial aid. The dollar value of the premium is about equal to the amount of financial aid received by students in eligible institutions, lending credence to the “Bennett hypothesis” that aid-eligible institutions raise tuition to maximize aid. This paper is available as PDF (203 K) or via email.