Bennett Hypothesis: Financial Aid Increases Tuition

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You can also use inflation to explain the rise in the cost of tuition. When you increase the money supply the cost of goods increases, in case of tuition, the increase in money supply through easy to obtain loans increased tuition prices.

The same goes for home loans, as the loans are easier to obtain the demand for houses increases with the increased money supply. We saw this when government regulation increased the quotas for loans for lower income borrowers, it caused housing to inflate beyond normal prices.

Regarding wages I see two issues, heavy government regulation in industries that discourage competition due to the high cost of regulatory burden that smaller firms can’t afford which prices them out. Of course a large pool of low skilled workers through illegal immigration creates a problem for entry level workers often delaying employment for younger workers ages 16-24. Although education is important so is experience at those ages. When someone has no work history the only thing they have to offer of value is their willingness to work for low wages, when that pool of applicants is larger than normal, many are priced out or must wait for employment therefore delaying their ability to climb the ladder.