Remarkably, so much of the subsidy is translated into higher tuition that enrollment doesn’t increase! What does happen is that students take on more debt, which many of them can’t pay.Mr Tabarrok suggests the conclusions ought be viewed as an upper bound, as a consequence of market power being exercised by the universities so subsidized. In the original paper, authors Grey Gordon of Indiana and Aaron Hedlund of Missouri note as much. But market power ought not come as a surprise: as long as the fifty claimants to be the top twenty universities keep their entering classes small and use financial aid offers to keep the perceived net price low, there will be the kind of excess demand that these institutions will exploit. (And if the land-grants and mid-majors keep going after the athletics and the amenities and the access-assessment-remediation-retention, where else will the strivers apply?)
IS ANYBODY SURPRISED?
Joanne Jacobs: "Student aid leads to tuition hikes." Yes, that's the logic of any third-party payment, and yet, even the brightest among you shall benefit by a modicum of repetition. Alex Tabarrok works through the paper, which produces one possible surprise.