To hear Republicans tell it, the constantly rising cost of higher education is attributable to increases in federal financial aid. House Republicans even made this argument to justify cutting Pell Grants in their fiscal year 2013 budget.
However, a new study by the Federal Reserve Bank of New York found that, at least in the last several years, tuition increases have been driven not by rising financial aid but by decreasing state budgets:
After 2007, the group of states with the most funding cuts (Group 1) also has the highest growth in tuition in each year, with an average annual growth rate of 3.4 percent in tuition. Our analysis suggests that over this period, a 10 percent decline in public funding for Group 1 is associated with an average annual increase of 3.1 percent in tuition at public institutions. This compares with an increase of 1.2 percent in public institution tuition for a 10 percent decline in public funding in our full sample over the same period (2007-11). That is, we observe an economically meaningful relationship between public funding and public institution tuition changes but mainly since the recession began and especially for the group of states with larger higher education funding cuts. […]
In the public discourse, federal funding is often blamed for driving up tuition. However, our analysis suggests that public schools are increasing tuition as a way to make up for decreasing state and local appropriations for higher education, and that deeper cuts in public funding may be associated with correspondingly greater tuition hikes.