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Economists Accuse Private Colleges of ‘Gaming’ Federal Aid Policies

Increases in the maximum Pell Grant award give private colleges a good reason to raise tuition, concludes a research paper published by the National Bureau of Economic Research.

By giving aid directly to students, rather than subsidizing institutions, the federal government “provides some potentially undesirable incentives for private colleges to ‘game the system,’ strategically increasing tuition to increase student aid,” the study says. The money those colleges bring in through higher tuition is used to improve the quality of education at the institution and attract higher-quality students, it adds.

As an example, the researchers analyze the most recent increase in the Pell Grant maximum from about $6,000 to $8,000, finding that the greater award does little to attract more students to college or to lower their overall cost of attendance.

“Overall, the federal aid increase fails in significantly increasing college attendance with much of the the increase instead bidding up college expenditures and tuition,” the study concludes.

The paper, titled “The U.S. Market for Higher Education: A General Equilibrium Analysis of State and Private Colleges and Public Funding Policies,” is available online.

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