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We study the link between the student credit expansion of the past 15 years and the contemporaneous rise in college tuition. To disentangle simultaneity issues, we analyze the effects of increases in federal student loan caps using detailed student-level financial data. We find a pass-through effect on tuition of changes in subsidized loan maximums of about 60 cents on the dollar and of about 20 cents on the dollar for unsubsidized federal loans. The effect is most pronounced for more expensive degrees and degrees offered by for-profit and 2-year institutions.

Received February 23, 2017; editorial decision March 8, 2018 by Editor Wei Jiang. Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.