June 1, 2012; Source: Washington Post

There has been a longtime conservative trope that the availability of student aid drives up college tuition levels. According to a critique of the concept written by David L. Warren, president of the National Association of Independent Colleges and Universities, the theory was promoted by William Bennett, the former secretary of the U.S. Department of Education, who argued three decades ago that “student aid has… given colleges and universities ‘license’ to increase tuition, meaning that federal student aid has not made higher education more accessible or more affordable.”

According to Warren, “There is not a shred of empirical evidence of a causal relationship between federal student aid and tuition increases at public and private nonprofit institutions, including institutions with high published prices and large endowments.” He calls the Bennett hypothesis “nothing more than an urban legend.” Warren contends, “Inflation-adjusted net tuition (published tuition minus grants from all sources and federal higher education tax benefits) at private nonprofit colleges has actually dropped by 4.1 percent in the past five years.”

The Wall Street Journal added an interesting additional dimension to the argument this week. While tuition assistance does not drive up tuition costs at public colleges and private nonprofit colleges, the WSJ reports that, “a new study found that tuition at for-profit schools where students receive federal aid was 75% higher than at comparable for-profit schools whose students don’t receive any aid.” The WSJ authors attribute the lack of a similar dynamic at public and nonprofit schools to the fact that such schools “aren’t motivated by profits and because their prices are largely determined by state funding and donations.”

The representative of the for-profit college sector disagrees. The president of the Association of Private Sector Colleges and Universities is Steve Gunderson, who only last year was heading a nonprofit trade association, the Council on Foundations. Now running the trade association of for-profit schools, Gunderson, according to the WSJ, “disputes a link between federal aid and prices, saying (for-profit) colleges merely respond to market demand.”

According to the Journal, in contrast to Gunderson’s statement, “A spokesman for Education Secretary Arne Duncan said the administration believes there is a link between federal aid and tuition increases at for-profit schools, but that it sees no such tie with public and nonprofit schools.”

Why is this story important, aside from the obvious and continuing debate in Congress about increasing, decreasing, or eliminating federal assistance for college tuition? It is important because the study result cited in the Journal documents—more clearly than most studies—the distinctive advantage of the nonprofit model over the for-profit structure in higher education.—Rick Cohen