Credit Supply and the Rise in College Tuition: Evidence from the Expansion in Federal Student Aid Programs

61 Pages Posted: 24 Jul 2015

See all articles by David O. Lucca

David O. Lucca

Federal Reserve Banks - Federal Reserve Bank of New York

Taylor Nadauld

Brigham Young University

Karen Chen

Federal Reserve Bank of New York

Multiple version iconThere are 2 versions of this paper

Date Written: October 1, 2016

Abstract

When students fund their education through loans, changes in student borrowing and tuition are interlinked. Higher tuition costs raise loan demand, but loan supply also affects equilibrium tuition costs — for example, by relaxing students’ funding constraints. To resolve this simultaneity problem, we exploit detailed student-level financial data and changes in federal student aid programs to identify the impact of increased student loan funding on tuition. We find that institutions more exposed to changes in the subsidized federal loan program increased their tuition disproportionately around these policy changes, with a sizable pass-through effect on tuition of about 65 percent. We also find that Pell Grant aid and the unsubsidized federal loan program have pass-through effects on tuition, although these are economically and statistically not as strong. The subsidized loan effect on tuition is most pronounced for expensive, private institutions that are somewhat, but not among the most, selective.

Keywords: student loans, college tuition

JEL Classification: G28, I22

Suggested Citation

Lucca, David O. and Nadauld, Taylor and Chen, Karen, Credit Supply and the Rise in College Tuition: Evidence from the Expansion in Federal Student Aid Programs (October 1, 2016). FRB of New York Staff Report No. 733. Available at SSRN: https://ssrn.com/abstract=2634999 or http://dx.doi.org/10.2139/ssrn.2634999

David O. Lucca (Contact Author)

Federal Reserve Banks - Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States

Taylor Nadauld

Brigham Young University ( email )

Provo, UT 84602
United States

Karen Chen

Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
573
Abstract Views
2,276
rank
43,852
PlumX Metrics