For whom the Pell tolls: The response of university tuition to federal grants-in-aid

The Pell grant program is the largest federal program for college students, with support to over three million students at more than 6000 institutions. A prominent question in public debate is whether Pell grants tend to be appropriated by universities through increases in tuition—consistent with what is known as the Bennett hypothesis. Based on a panel of 1554 colleges and universities from 1989 to 1996, we find little evidence of the Bennett hypothesis for in-state tuition for public universities. For private universities, though, increases in Pell grants appear to be matched nearly one for one by increases in list (and net) tuition. Results for out-of-state tuition for public universities are similar to those for private universities, suggesting that they behave more like private ones in setting out-of-state tuition. Institutional responses in these latter cases appear at odds with federal grants-in-aid policy.