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

See all articles by Katharina Ley Best

Katharina Ley Best

University of Michigan Ann Arbor - Industrial and Operations Engineering

Jussi Keppo

National University of Singapore - NUS Business School

Multiple version iconThere are 2 versions of this paper

Date Written: November 16, 2011

Abstract

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

Suggested Citation

Best, Katharina Ley and Keppo, Jussi, The Credits that Count: How Credit Growth and Financial Aid Affect College Tuition and Fees (November 16, 2011). Available at SSRN: https://ssrn.com/abstract=1766549 or http://dx.doi.org/10.2139/ssrn.1766549

Katharina Ley Best (Contact Author)

University of Michigan Ann Arbor - Industrial and Operations Engineering ( email )

1205 Beal Ave.
Ann Arbor, MI 48109
United States

HOME PAGE: http://sitemaker.umich.edu/katley/home

Jussi Keppo

National University of Singapore - NUS Business School ( email )

1 Business Link
Singapore, 117592
Singapore

Register to save articles to
your library

Register

Paper statistics

Downloads
226
Abstract Views
2,031
rank
72,638
PlumX Metrics