The link between student loans and rising tuition has been debated for years, but a brand new study from the New York Federal Reserve lends support to the claim that it is indeed subsidized loans that are driving up tuition. As The Week reports,
When subsidized federal loans have the effect of “relaxing students’ funding constraints,” universities respond by raising tuition to collect the newly available cash.
The resultant tuition hikes can be substantial: The researchers found that each additional dollar of Pell Grant or subsidized student loan money translates to a tuition jump of 55 or 65 cents, respectively. Of course, the higher tuition also applies to students who don’t receive federal aid, making college less affordable across the board.
The report also found that subsidized federal loans do not appear to increase enrollment.