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The Effect of the Availabilty of Student Credit on Tuitions: Testing the Bennet Hypothesis using Evidence from a Large-Scale Student Loan Program in Brazil

Author

Listed:
  • Isabela Duarte

    (PUC - Rio)

  • Joao de Mello

    (Insper)

Abstract

We test whether the availability of student loans increases tuition costs, the Bennet Hypothesis. Starting in 2010, there was a major ramp-up in the FIES, a student loan program funded by the Brazilian federal government. FIES’s rules for eligibility produce a marked heterogeneity in the access to funding in different higher education institutions. We take advantage of these rules and of an unique dataset with information on tuition costs at the major-college level, and document two facts. Using a difference-in-differences approach, we show that relaxing access to student loans caused an increase in tuition fees. We also estimate a structural model of demand, and show that relaxing credit constraints reduces the demand price elasticity. Thus the mechanism behind the increase in tuition costs is an increased tuition insensitivity, at least in part.

Suggested Citation

  • Isabela Duarte & Joao de Mello, 2016. "The Effect of the Availabilty of Student Credit on Tuitions: Testing the Bennet Hypothesis using Evidence from a Large-Scale Student Loan Program in Brazil," 2016 Meeting Papers 1451, Society for Economic Dynamics.
    • Handle: RePEc:red:sed016:1451
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    References listed on IDEAS

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    1. McPherson, Michael S. & Schapiro, Morton Owen, 1997. "Financing Undergraduate Education: Designing National Policies," National Tax Journal, National Tax Association;National Tax Journal, vol. 50(3), pages 557-571, September.
    2. McPherson, Michael S & Schapiro, Morton Owen & Winston, Gordon C, 1989. "Recent Trends in U.S. Higher Education Costs and Prices: The Role of Government Funding," American Economic Review, American Economic Association, vol. 79(2), pages 253-257, May.
    3. McPherson, Michael S. & Schapiro, Morton Owen, 1997. "Financing Undergraduate Education: Designing National Policies," National Tax Journal, National Tax Association, vol. 50(3), pages 557-71, September.
    4. Michael S. McPherson & Morton Owen Schapiro, 1997. "Financing Undergraduate Education: Designing National Policy," Williams Project on the Economics of Higher Education DP-43, Department of Economics, Williams College.
    5. Tomás Rau & Eugenio Rojas & Sergio Urzúa, 2013. "Loans for Higher Education: Does the Dream Come True?," NBER Working Papers 19138, National Bureau of Economic Research, Inc.
    6. Peltzman, Sam, 1973. "The Effect of Government Subsidies-in-Kind on Private Expenditures: The Case of Higher Education," Journal of Political Economy, University of Chicago Press, vol. 81(1), pages 1-27, Jan.-Feb..
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    Cited by:

    1. Del Rey Elena & Estevan Fernanda, 2020. "Assessing Higher Education Policy in Brazil: A Mixed Oligopoly Approach," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 20(1), pages 1-16, January.

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