Financial Aid and College Pricing: Estimates from the PLUS Program
40 Pages Posted: 28 Jul 2016 Last revised: 8 Aug 2017
Date Written: August 7, 2017
We study how financial aid affects college pricing. As a demand shock, we exploit a tightening of credit standards in the PLUS loan program, which decreased enrollment, revenues, and expenditures at private colleges with low-income students. We estimate that marginal costs were less than half of tuition and fees, implying that colleges charged large markups to students who were disqualified. Markups were higher at for-profit schools, and in states with fewer public schools. Our results complement prior evidence on the Bennett Hypothesis, and they contrast prior estimates of small markups. They suggest that financial aid should target colleges’ fixed costs.
Keywords: Credit Histories, Student Loans, PLUS Loans, Bennett Hypothesis
JEL Classification: I22, D14, I23, G28
Suggested Citation: Suggested Citation