The Credits that Count: How Credit Growth and Financial Aid Affect College Tuition and Fees
50 Pages Posted: 24 Feb 2011 Last revised: 22 Mar 2012
Date Written: November 16, 2011
Using a two-stage least squares approach, we build a macroeconomic model of supply and demand for US higher education as measured by enrollment. We find that college education benefits (e.g. relative earnings and employment level), credit factors (e.g. student loan amounts and household debt), and financial aid shift demand. Higher tuition prices, when tied to increased offerings to students, increase appeal of higher education for students. However, credit constraints put a barrier on demand growth. Tuition prices and debt levels are highly correlated, suggesting that students respond to higher tuition prices by borrowing. School's operating costs, government aid to schools, and tuition and non-tuition revenue drive supply. Relative demand-side price inelasticity schools to raise prices. For the private institution sector alone, we see a higher level of consumer price sensitivity, with schools determining enrollment levels and adjusting tuition price according to the demand function.
Keywords: Demand for Schooling, Educational Economics, Educational Finance, Student Financial Aid, Aggregate Supply & Demand
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