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Tuition and Enrollment in Higher Education

Paper Session

Friday, Jan. 4, 2019 10:15 AM - 12:15 PM

Atlanta Marriott Marquis, M104
Hosted By: American Economic Association
  • Chair: Grey Gordon, Federal Reserve Bank of Richmond

College Tuition and Income Inequality

Zhifeng Cai
,
Rutgers University
Jonathan Heathcote
,
Federal Reserve Bank of Minneapolis

Abstract

The average cost of college tuition in the United States has been rising much faster than general inflation for decades. This paper evaluates the role of rising income inequality in driving up tuition. We develop a model in which heterogeneous households decide whether to send their child to college, and if so, to which quality of college. On the supply side, the college market is competitive, and college quality is a constant returns to scale function of instructional expenditure and the average ability of admitted students. An important new feature of our model is that we allow for a continuous distribution of college quality.

We first develop a closed-form characterization of equilibrium in a version of the model with no resource inputs in producing college education. In the second part of the paper we calibrate a richer version of the model. We find that observed increases in US income inequality can explain more than 100% of the observed rise in average net tuition since 1990, and that rising income inequality has also depressed college attendance.

Market Power and Price Discrimination in the United States Market for Higher Education

Dennis Epple
,
Carnegie Mellon University
Richard Romano
,
University of Florida
Sinan Sarpça
,
Koç University
Holger Sieg
,
University of Pennsylvania
Melanie Zaber
,
Carnegie Mellon University

Abstract

The main purpose of this paper is to estimate an equilibrium model of private and public school competition that can generate realistic pricing patterns for private universities in the U.S. We show that the parameters of the model are identified and can be estimated using a semi-parametric estimator given data from the NPSAS. We find substantial price discrimination within colleges. We estimate that a $10,000 increase in family income increases tuition at private schools by on average $210 to $510. A one standard deviation increase in ability decreases tuition by approximately $920 to $1,960 depending on the selectivity of the college. Discounts for minority students range between $110 and $5,750.

Spatial Variation in Higher Education Financing and the Supply of College Graduates

John Kennan
,
University of Wisconsin-Madison

Abstract

In the U.S. there are large differences across States in the extent to which college education is subsidized, and there are also large differences across States in the proportion of college graduates in the labor force. State subsidies are apparently motivated in part by the perceived benefits of having a more educated workforce. The paper extends the migration model of Kennan and Walker (2011) to analyze how geographical variation in college education subsidies affects the migration decisions of college graduates. The model is estimated using NLSY data, and used to quantify the sensitivity of migration and college enrollment decisions to differences in expected net lifetime income, focusing on how cross-State differences in public college financing affect the educational composition of the labor force. The main finding is that these differences have substantial effects on college enrollment, and that these effects are not dissipated through migration.

Accounting for Tuition Increases across United States Colleges

Grey Gordon
,
Federal Reserve Bank of Richmond
Aaron Hedlund
,
University of Missouri

Abstract

This paper uses detailed institution-level data and an equilibrium model to assess different theories for the steep, persistent rise in college tuition. The framework embeds quality-maximizing, imperfectly competitive colleges into an incomplete markets, life-cycle environment with student loan borrowing and default. We measure the contribution of supply-side factors---namely, Baumol's cost disease and changes in the availability of non-tuition revenue sources---as well as demand-side forces, such as evolutions in the college earnings premium and changes to the Federal Student Loan Program. Together, these forces explain the entire increase in net tuition since 1987 with increases in demand playing the largest role.
Discussant(s)
Alex Monge-Naranjo
,
Federal Reserve Bank of St. Louis
Rui Castro
,
McGill University
John Bailey Jones
,
Federal Reserve Bank of Richmond
Oksana Leukhina
,
Federal Reserve Bank of St. Louis
JEL Classifications
  • I2 - Education and Research Institutions
  • L3 - Nonprofit Organizations and Public Enterprise