From the Chronicle of Higher Education (subscription required):
If the U.S. Congress wants to curb the growth in college prices, it should "put a brake" in spending on federal student aid, a scholar from a conservative think tank told lawmakers on Tuesday.
Speaking at a hearing of the House of Representatives Committee on Education and the Workforce, Richard K. Vedder, an adjunct scholar at the American Enterprise Institute and a professor of economics at Ohio University at Athens, charged that by continually increasing the budgets of federal grant and loan programs, the government is making it easier for colleges to jack up their prices.
"Universities raise their tuition a lot because they can get away with it," Mr. Vedder stated. He urged the lawmakers to practice "tough love with American higher education" and "stop the growth in the money flow."
Dr. Vedder's findings are plausible, but the reason quoted above isn't accurate. The claim that "Universitites raise their tuition a lot because they can get away with it" is a "bad dog" claim: "he did it because he's a bad dog.". Competition between colleges for students will help put the "bad dogs" in check. Instead, the reason for the positive relationship between federal funding and college tuition is likely much more basic.
Giving greater access to loans essentially transfers future income to the present. Grants raise incomes of college-bound people - income that can be spent on college, freeing up earned income for other things. In any case, if a college education is a normal good (and I suspect that it is), grant and loan programs increase the demand for college - putting upwards pressure on the price colleges charge for tuition.