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The Effect of the Availability of Student Credit on Tuition: Testing the Bennett Hypothesis Using Evidence from a Large-Scale Student Loan Program in Brazil

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  • Joao M. P. De Mello
  • Isabela Ferreira Duarte

Abstract

Exploring the expansion of FIES—a large student lending program in Brazil— we test whether eligibility for subsidized student lending causes tuition to rise, in accordance with the Bennett hypothesis. FIES rules created arguably exogenous variation in eligibility across different majors and higher education institutions, which we exploit in a difference-indifferences framework. Using unique information on tuition, we document that FIES eligibility caused tuition to rise. We then estimate a structural demand model to explore whether a reduction in the sensitivity of demand to price increases is one of the possible mechanisms behind this credit-driven tuition rise. Our results show that FIES expansion is associated with a reduction in the tuition elasticity of demand.

Suggested Citation

  • Joao M. P. De Mello & Isabela Ferreira Duarte, 2020. "The Effect of the Availability of Student Credit on Tuition: Testing the Bennett Hypothesis Using Evidence from a Large-Scale Student Loan Program in Brazil," Economía Journal, The Latin American and Caribbean Economic Association - LACEA, vol. 0(Spring 20), pages 179-222, December.
    • Handle: RePEc:col:000425:019761
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    More about this item

    Keywords

    Student lending; tuition inflation; policy evaluation;
    All these keywords.

    JEL classification:

    • D04 - Microeconomics - - General - - - Microeconomic Policy: Formulation; Implementation; Evaluation
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • I22 - Health, Education, and Welfare - - Education - - - Educational Finance; Financial Aid

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