Policymakers have been debating the Bennett Hypothesis—whether colleges increase tuition after the federal government increases access to student loans—for decades. Yet most of the prior research has focused on studying small changes to loan limits or Pell Grants for undergraduate students. In this study, I examine whether business schools (the most popular master’s program) and medical schools (one of the most-indebted programs) responded to a large increase in federal student loan limits in 2006 following the creation of the Grad PLUS program by raising tuition or living expenses as well as examining whether student debt burdens also increased. Using two quasi-experimental estimation strategies and program-level data from 2001 to 2016, I find little consistent evidence to support the Bennett Hypothesis in either medical or business schools.
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Professional students enrolled in fields such as public health, pharmacy, or clinical psychology were subject to annual loan limits of $31,000 prior to 2006 (Bhole 2017). For the sake of brevity (and because they are not the focus of my analyses), I do not discuss them in more detail in this paper.
The origins of the idea date back to at least 1976 (Gladieux and Wolanin 1976), but it was popularized by Secretary Bennett. Thank you to Beth Popp Berman for bringing this piece to my attention.
An ‘adverse credit history’ is defined as having at least $2,085 in debt at least 90 days delinquent in the last 2 years or having a foreclosure, default, or wage garnishment in the last 5 years (Federal Student Aid 2015).
Unfortunately, a lack of data availability on program-level operating costs at the graduate/professional level makes it impossible at this point to fully separate Bowen, Baumol, and Bennett effects.
The estimate for business students includes both full-time and part-time students. Since my analysis focuses on full-time students only, the borrowing rate is likely higher.
U.S. News also surveys osteopathic programs under the medicine section of the guidebook, but I omitted those programs (approximately 30) to ensure a more comparable sample.
These colleges could have had a business school that was either not accredited by AACSB or did not respond to the survey in any year, but this represents very few full-time students who could have been affected by the increase in federal student loan limits.
The full set of coefficients is available upon request from the author.
Under an alternative set fair-value accounting estimates (which base projections on market risk instead of Treasury yields), Grad PLUS loans are already viewed as being unprofitable for the federal government.
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This project was supported by AIR Grant #RG15149 from the AccessLex Institute and the Association for Institutional Research. Any opinions, findings, and conclusions or recommendations expressed in this material are those of the author and do not necessarily reflect the views of the AccessLex Institute or the Association for Institutional Research. I would like to thank Joseph Fresco and Olga Komissarova for their research assistance throughout this project and Dominique Baker, Amy Li, Judith Scott-Clayton, and Douglas Webber for their helpful thoughts in framing this line of research. All errors are my own.
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See Table 7.
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Kelchen, R. Does the Bennett Hypothesis Hold in Professional Education? An Empirical Analysis. Res High Educ 61, 357–382 (2020). https://doi.org/10.1007/s11162-019-09557-9
- Bennett hypothesis
- Student debt
- Medical schools
- Business schools