South By North Strategies, Ltd.

Jared Bernstein looks at the claim that federal financial aid causes college tuition to rise.

Research shows that tuitions at the public universities, where 75% of students enroll, are very much a function of revenue flows.  Thus, when they hit recession—and remember, states must balance their budgets—a couple of unfortunate things tend to happen at the same time.  First, tuitions tend to rise, and second, with the increase in unemployment, more young adults decide that given the weak job market, this would be a good time to get some more education.  (Another interesting strain of research finds that increased state Medicaid costs has also led to higher tuition at public universities.)
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So that’s when you’d actually want to ratchet up Federal aid, which is in fact what the Obama administration did with the American Opportunity Tax Credit and significant increase in Pell grants.
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Conservatives who oppose these measures often complain that they don’t really lower tuitions because they’re directly capitalized into the price, but in the majority of cases, that’s wrong (Rep Paul Ryan goes after Pells particularly aggressively).   We might well want to exclude those institutions that abuse federal aid from the programs that grant them, but they are a minority.  If we want less advantaged kids to have a fair shake at getting to and getting through college, these aid programs are essential.