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

Isabela Duarte () and Joao de Mello
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Joao de Mello: Insper

No 1451, 2016 Meeting Papers from Society for Economic Dynamics

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.

Date: 2016
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