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Financial Aid and College Pricing: Estimates from the PLUS Program

40 Pages Posted: 28 Jul 2016 Last revised: 8 Aug 2017

Mahyar Kargar

University of California, Los Angeles (UCLA) - Anderson School of Management

William Mann

University of California, Los Angeles (UCLA) - Anderson School of Management

Date Written: August 7, 2017

Abstract

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

Kargar, Mahyar and Mann, William, Financial Aid and College Pricing: Estimates from the PLUS Program (August 7, 2017). Available at SSRN: https://ssrn.com/abstract=2814842 or http://dx.doi.org/10.2139/ssrn.2814842

Mahyar Kargar

University of California, Los Angeles (UCLA) - Anderson School of Management ( email )

Los Angeles, CA
United States

William Mann (Contact Author)

University of California, Los Angeles (UCLA) - Anderson School of Management ( email )

110 Westwood Plaza
Los Angeles, CA 90095-1481
United States

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