WASHINGTON, D.C. – A recent study by the Federal Reserve Bank of New York shows that increases in federal student financial aid amount to a transfer of wealth to universities that jack up tuition to absorb the money.

“The New York study found that for every dollar a college receives in Direct Subsidized Loans, a school raises its price by 65 cents,” The Wall Street Journal reports. “For every dollar in Pell Grants, a college raises tuition by 55 cents. This is one reason tuition has outpaced inflation every year for decades, while the average borrower now finishes college owing more than $28,000.”

U.S. Department of Education officials, meanwhile, claim researchers got it all wrong – presumably because they show student aid doesn’t work to lower the cost of higher education – and called in reporters this week to counter the recent study.

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“If you look at historical data – we’ve looked at this question very closely – that does not quite seem to be the case,” Education Secretary Arne Duncan told reporters, according to the Washington Examiner.

“Historically, we do not see that correlation,” Undersecretary Ted Mitchell said. “(We) continue to be encouraged that states and institutions are not using the federal grant program and aid program as a way of bumping up their own tuitions. Be we continue to look at that, it’s one of the things we’re very concerned about.”

Federal education officials believe the problem stems from states that don’t spend enough on higher education, or hold schools accountable. Those states have lower student dropout rates, which federal education officials think is a key component in student loan defaults.

“States that take the high road, that take leadership and say that higher education is not only a private good and the state’s economy and health of civil society depends on it, those are the states where you see higher education spending, where you see increased levels of competition, lower levels of default,” Mitchell said.

“And our argument is that’s good for everybody.”

According to the Examiner:

The department also released state-by-state data showing that the states with the highest completion rates have the lowest rates of defaults on student loans. Massachusetts, with a top graduation rate of 69 percent in 2013, meaning the share of full-time students who graduated four-year college within six years, had a cohort default rate of just 7 percent, versus a national average of 11 percent. With a completion rate of just 29 percent, in contrast, Arizona had a default rate of 18 percent.

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The New York study, however, seems to pin the problem of skyrocketing tuition on the dynamic between the federal government and small private schools.

“Congress sells its bipartisan photo-op aid bills as a way to broaden access to education, but they don’t. More access to subsidized loans didn’t spur a swell in enrollment, though the authors hedge by mentioning that schools might need time to expand,” the WSJ reports.

“The institutions that raised tuition the most were less distinguished private schools charging high tuitions (more than $22,000 in 2004) that accept about three-quarters of applicants. Such schools, the report notes, tend to have modest endowments and rely on middle- and high-income families