Rising student debt levels and fresh academic research have brought greater scrutiny to the question of whether the federal government's expanding student-aid programs are driving up college tuition.
Studies of the relationship between increasing aid and climbing prices at nonprofit four-year colleges found mixed results, ranging from no link to a strong causal connection. But fresh academic research supports the idea that student aid in the form of grants leads to higher prices at for-profit schools, a small segment of postsecondary education.
The 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. Aid-eligible institutions need to be accredited by the Education Department, licensed by the state and meet other standards such as a maximum rate of default by students on federal loans.
The tuition difference was roughly equal to the average $3,390 a year in federal grants that students in the first group received, according to the National Bureau of Economic Research working paper by Claudia Goldin of Harvard University and Stephanie Riegg Cellini of George Washington University.
The authors only examined programs that award associate's degrees and nondegree certificates in fields including business, computer sciences and cosmetology. They didn't look at tuition charged for bachelor's degrees or at public and private nonprofit universities, which together educate roughly 90% of postsecondary students.
The authors said their findings lent "credence to the…hypothesis that aid-eligible institutions raise tuition to maximize aid."
Steve Gunderson, president of the Association of Private Sector Colleges and Universities, a trade group for for-profit schools, disputes a link between federal aid and prices, saying colleges merely respond to market demand.
The study's authors warned their findings don't apply to public colleges and private nonprofit schools, which they say are different because they aren't motivated by profits and because their prices are largely determined by state funding and donations.
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.
A spokeswoman for President Barack Obama's re-election campaign said federal student aid "helps millions of Americans access the education they need to advance their future."
Mitt Romney's campaign said last month that "a flood of federal dollars is driving up tuition and burdening too many young Americans with substantial debt." The campaign said the likely Republican presidential nominee would reduce the government's role in student lending.
Tuition and fees at four-year public schools have risen 150% since 1990, to an average $8,244 per student this past academic year, according to the College Board, an advocacy group made up of universities.
Over the same period, federal grants and tax benefits rose 242%, to an average $4,292 per student, said education consultants Kathy Payea and Sandy Baum, who conduct the College Board's annual research on college prices. Federal loans per student tripled.
Heather Burke, 32 years old, of Forest Grove, Ore., received more than $16,000 in federal grants and took out federal and private loans to attend the University of Phoenix, a national for-profit school. She graduated in 2008 with a bachelor's degree in business management.
She now owes $60,000 in student loans, but she says she can barely keep up with her payments and take care of two children on a $30,000-a-year salary as a business-development manager for a seller of recreational vehicles—the same job she had before going to school.
"I was just like any other young mother trying to figure out a way to further educate myself" and earn a higher paycheck, she said. Now, "I totally regret going to school, and that's not how you should feel after attending."
The average debt load of all new graduates rose 24%, adjusted for inflation, from 2000 through 2010, to $16,932, according to the Progressive Policy Institute, a left-leaning think tank in Washington.
Those who see a link between rising aid and tuition say colleges, under pressure to increase prestige, boost spending on highly paid professors and amenities such as new stadiums and dormitories. And because the federal government has raised student borrowing limits and offered bigger grants, colleges raise tuition to cover these costs knowing that students won't be taking the full hit, these people say.
"They're not driven by efficiently providing a certain service, they're driven by how good they look in the ratings," said Neal McCluskey of the Cato Institute, a conservative think tank.
Economist Andrew Gillen of the Center for College Affordability and Productivity—a research group that focuses on free-market solutions for rising college costs—sees evidence of this dynamic in law-school tuition, which has climbed faster than undergraduate tuition. He said a main factor was that law-school students can borrow much more from the federal government—as much as $138,500 over their lifetime.
Such critics have called for government to cut overall student aid and make sure it goes only to the neediest students who otherwise wouldn't be able to attend school. Doing so would force colleges to lower their prices, they say.
Terry Hartle of the American Council on Education, which represents public and private nonprofit universities, disagrees, saying rising tuition reflects climbing labor costs and cuts in state funding. He said federal aid has increased to help students afford higher tuition. He notes tuitions have increased even in years when aid programs have fallen.