President Bush signed legislation increasing the maximum Pell grant amount by about 25% over the next 4 years. In real terms, that is still probably a decrease. The larger point of course is whether or not this will actually do anything to make college more affordable?
Let’s think of what could possibly happen? If consumers are given a coupon to purchase a new car, are they more likely to:
(a) Buy a nicer car
(b) Buy the same car
(c) Buy a less expensive car
(d) Buy a Car when they were not intending to
(e) Not buy a car when the were intending to
(f) Buy (not buy) a car when they were (not) intending to?
(a) and (d) are your best answers, no? Demand curves slope downward.
This expansion in aid might help for students who intend colleges with excess capacity, but it is not likely to help otherwise. What does the data say?
Nancy Pelosi boasts, “We have delivered on our promise to make college more affordable.”
I would not be so proud. Prices are reduced when demand falls or when supply increases. Has this law done anything to make college-going LESS attractive? Has this law done anything to stimulate the production of spaces at colleges? Or, has this law even done anything to make it easier for colleges to price discriminate? The only possible hope is the latter.