Issue Briefs

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For private, nonprofit colleges, the cost conversation hinges on the sticker-versus-net-price distinction. High published prices can cause "sticker shock" that discourages students, especially low-income students, from applying, even though generous institutional aid often makes the net price far lower and sometimes competitive with less costly public institutions. In fact, the amount students actually pay has, since 2006-07, fallen in real dollars – a stark contrast to the ongoing public commentary about rising sticker prices. According to the College Board’s 2025 report, Trends in College Pricing, “The average net tuition and fees paid by first-time full-time students enrolled in private nonprofit four-year institutions declined from $19,810 (in 2025 dollars) in 2006-07 to an estimated $16,910 in 2025-26.”

A recurring federal-policy flashpoint is the "Bennett hypothesis,” so named after the former Secretary of Education William Bennett for his 1987 op-ed in the New York Times where he claimed without evidence that increased federal student aid enabled institutions to raise prices. Because the Bennett hypothesis is frequently invoked to justify capping or cutting federal aid, research on this topic is significant to the private, nonprofit sector and warrants a closer look.

In short, the research record on this finds little-to-no support for the Bennett hypothesis, particularly for the private, nonprofit sector. Indeed, the Congressional Research Service has found the body of research does not provide conclusive results in any direction, the Government Accountability Office found the impact of loan-limit increases on college prices difficult to discern, and numerous scholars have found little evidence that federal aid drives up tuition or causes institutions to reduce their own aid.

Federal and government studies. The NCES Study of College Costs and Prices, 1988-89 to 1997-98 (Cunningham et al., 2001), found "no associations between most of the aid variables (federal grants, state grants, and student loans) and changes in tuition in either the public or private not-for-profit sector." Earlier, the congressionally chartered National Commission on the Cost of Higher Education (1998) found "no conclusive evidence that loans have contributed to rising costs and prices." Studies conducted across the Clinton, George W. Bush, and Obama administrations have found no link between student aid and tuition increases, particularly at public and private, nonprofit institutions.

Literature reviews find inconsistency. A 2014 Congressional Research Service review identified nine post-2000 studies with sufficiently rigorous methodology and found no consensus across them about the effects of student aid on price, with results shifting substantially based on model assumptions.

Sector-specific studies find weak or no effect. Singell and Stone (2003) found no evidence of the Bennett Hypothesis at private institutions (though they did find an effect at public four-year institutions). Frederick, Schmidt, and Davis (2012), testing an augmented version at community colleges, found minimal evidence for the hypothesis. Robert Kelchen's work on graduate education, leveraging the 2006 Grad PLUS expansion, found rather modest relationships across public and private, nonprofit law schools, with similar findings in medical and business schools, concluding there was a lack of strong empirical support for the Bennett hypothesis.

Tuition Discounting

Tuition discounting is the practice by which private, nonprofit colleges award institutional grant aid (scholarships, grants, fellowships) that reduces the published tuition price for students, effectively forgoing revenue they could otherwise collect. It is measured by the "discount rate," the share of gross tuition and fee revenue returned to students as institutional aid.

Discounting has reached record levels. According to NACUBO's annual Tuition Discounting Study, the average discount rate in 2024-25 reached 56.3% for first-time, full-time undergraduates and 51.4% for all undergraduates, meaning that for every dollar of tuition these institutions could have charged, they provided roughly 56 and 51 cents, respectively, in institutional grant aid. More than 83% of first-time, full-time students received some institutional grant aid, and the grants are funded mostly from undedicated revenue sources (with smaller shares from reserves, endowment earnings, and gifts).

The upshot here is that discounting is a primary mechanism through which private colleges make themselves affordable and accessible, allowing institutions to enroll students across income levels and bring students’ net price well below sticker price. Coupled with retention strategies, it can support enrollment and even net-revenue growth, an outcome highlighted in NACUBO’s report.

The downside is that high and rising discount rates can create financial stress for tuition-dependent institutions that forgo more than half their potential tuition revenue, which raises long-term sustainability concerns. The reliance on ever-deeper discounting carries real risks, and some institutions have responded with tuition resets, which are sharp cuts to sticker prices and, typically, a proportional reduction in aid.

High sticker prices, and the generally opaque nature of college pricing, have fed congressional and media narratives about runaway costs, endowment hoarding, and unaffordability which, in turn, have eroded trust in higher education and driven legislative and regulatory proposals like endowment tax expansions, price transparency mandates, and earnings-based accountability metrics. And all of this continues despite deep discounting resulting in net revenue per student staying flat or falling at institutions across the country.

History

The national conversation around college costs grew out of the federal government's mid-century choice to subsidize student access rather than fund institutions directly. The same 1972 amendments to the HEA that established the Pell Grant program created the concept of “cost of attendance,” which was designed to prevent students from receiving too much federal aid. As tuition prices climbed over the years, former Secretary of Education William Bennett’s New York Times op-ed created the Bennett hypothesis, which has been debated for roughly 40 years, with no clear end to its use in sight.

In response to mounting cost concerns, Congress chartered the National Commission on the Cost of Higher Education, whose 1998 report found no conclusive evidence that loans had driven up prices but urged further study. In 2006, then-Secretary of Education Margaret Spellings released a report on college access, affordability, and quality, “A Test of Leadership: Charting the Future of U.S. Higher Education.” Following the 2008 recession, scrutiny of the cost of college increased just as the total outstanding student loan debt increased, parallel trends that have continued thru today, when public and political scrutiny of college cost is higher than ever.