DP-71 "A Note on How Well Available Income Information Identifies Low-Income Students," March 2007.
This note looks at the quality of the information on family income that selective colleges rely on to increase equality of opportunity by recruiting high-ability, low-income students. Individual family income estimates embedded in the College Board’s search parameters are compared, for 635 recent Williams matriculants, with their incomes as reported on IRS Forms 1040 and, for further comparison, with self-reported incomes. The data suggest that there is considerable room for improvement and, indeed, until there is better information, that any effort to increase equality of opportunity by energetic recruitment of high-ability, low-income students will be haphazard at best.
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DP-70 "Social Comparison of Abilities at an Elite College: Feeling Outclassed with 1350 SATs," February 2006.
Two studies explored the experience and performance of students at Williams College in three-person groups that were homogeneous or heterogeneous in rated academic ability. In accord with hypotheses from Festinger’s (1954) social comparison theory, students in academically homogeneous groups had more positive experiences and performed better on measures of written and video-taped performance. These results differ somewhat from recent studies of peer effects among roommates and from a line of recent social comparison research regarding the effect of exposure to superior others on one’s own performance. In addition, students in single-sex groups had higher scores on several self-report and performance measures. Qualifying this finding were additional results showing that women did better in single-sex, while men did better in mixed-sex groups. The overall results were framed in terms of social comparison dynamics.
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DP-69 "Access to the Most Selective Private Colleges by High-Ability, Low-Income Students: Are They Out There?," October 2005.
With only a small number of their students coming from families with the lowest incomes (10% from the bottom two family income quintiles), the nation's most selective private colleges and universities need to know why. Two ready ideological answers are (1) that low-income high-ability students are being excluded in order to favor the children of society's most advantaged or (2) that very few low-income high-ability students exist - that by college age, low-income students have been so damaged by education, nutrition, neighborhoods, and families that few can qualify in a perfectly fair admissions process. This paper uses the national population of high school test-takers in 2003 to examine the national distribution over family incomes of high-ability students (variously defined). With these data, two questions can be addressed. What would be the target share of low-income students at these schools if their student bodies were to mirror the national high-ability population? And, are they out there - do there exist enough such low-income, high-ability students to meet those targets? It is shown that they are out there - that a somewhat larger share of the test-taking population is made up of high-ability, low-income students than are found in these schools and that their numbers make it feasible for the schools to increase their enrollments to target that national share. Because much depends on the definition of "high-ability" used, we consider alternative definitions but reach the same conclusion at any reasonable level (like a minimum combined SAT of 1300 or even 1420).
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DP-68 "Institutional Ethos, Peers and Individual Outcomes," June 2004.
In this paper, we present estimates of roommate and institution based peer effects. Using data from the College & Beyond survey, the Freshman survey, and phonebook data that allows us to identify college roommates - we estimate models of students' political persuasion and intellectual engagement. The evidence suggests that a student's roommate's political sentiments have some impact on their own political views later in life. We also implement a cluster based analysis that attempts to answer the question: how would a student's outcomes have changed if they'd attended a very different school? Our findings suggest that student outcomes are, indeed, sensitive to the school they attend. Similar students attending schools that have a decidedly different "ethos" differ in important ways post-college. Institutional peer effects seem to have a powerful effect on student outcomes.
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DP-67 "Who Cares? How Students View Faculty and Other Adults in US Higher Education," April 2004.
Using Mellon Foundation's College and Beyond survey of alumni from 34 colleges and universities spanning 40 years, Clotfelter found that those who reported that someone "... besides students [took] a special interest in you or your work" also reported greater general satisfaction with their college and, concretely, made larger alumni gifts. This paper uses those same data to see who it was who is reported to have cared - faculty, coaches, deans,... - how that differed by institutional type - public research universities, coed or women's liberal arts colleges, Ivy universities... - and how it changed over time - for entering cohorts of 1951, 1976, 1989. Some of the results may be predictable - for instance, that faculty are the main 'care givers' in all times and places - while others are unexpected - that there's no indication of a decline in the faculty role over time, for instance, or that athletes, while they find coaches more caring than do non-athletes, still report that faculty are more caring than coaches.
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DP-66r "Affordability: Family Incomes and Net Prices at Highly Selective Private Colleges and Universities," January 2004.
College tuition is frequently compared, in press and politics, to the US median family income. That is, however, a highly misleading benchmark since schools with need-based financial aid rarely charge students from median income families the reported sticker price. Working from the financial aid records of individual students at twenty-eight highly selective private colleges and universities (COFHE schools), we addressed two questions: what do the highly able low income students at these schools actually pay, net of financial aid grants, for a year's education and how do these schools differentiate their prices in recognition of the different family incomes of their students - the concrete evidence of their dedication to equality of opportunity? The answer to the first question is that while there is considerable variety in net prices, many of these expensive schools charge their low income students very little (one, less than $800 a year for the average student in the bottom income quintile), making it quite reasonable for a highly able student to aspire to go to a very selective private college or university regardless of family income. The second answer also reveals considerable variety among schools. Virtually all of them charge students in the bottom income quintile a lower net price, on average, than they do their wealthier students, but at some, net price as a share of family income rises as incomes increase while at others it falls. Most, however, follow pricing policies that embody rough proportionality between net price and family income over the whole range of the student incomes, including those paying the full sticker price. The net prices that remain to be paid by aided students are covered, of course, by direct payment and "self-help" - loans and student jobs. In these data, the error in the popular representation of tuition and income is clear: the average sticker price is 66% of median US family income but the average student at that level pays just 23% of family income.
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DP-65 "Toward a Theory of Tuition: Prices, Peer Wages, and Competition in Higher Education," January 2003.
College tuition, as the price of higher education services, defies familiar economic analysis in important ways. It is recognized that tuition is a price that covers only a fraction of the cost of producing those educational services (about a third, nationally), creating an in-kind subsidy for students (the balance being made up by large flows of donative resources from gifts, appropriations, and returns on wealth). This paper examines yet another important economic peculiarity of tuition; it takes seriously input and output markets implied by Rothschild-White (1995 JPE) in which a single event - of a student's matriculation - is simultaneously a transaction in both an input market (where a wage is paid for a student's peer quality) and an output market (where a price is paid for the college's educational services). Those two prices are obscured by the fact that the peer wage is paid in the form of a discount on the price of educational services as well as by the fact that the schools' sales (tuition) revenues are significantly augmented by those donated resources. This framing sees a school's access to donated resources (wealth) critical in determining which market - peer quality inputs or educational services sales - will most influence its behavior. Apparent anomalies in the product market - like queues of unsatisfied customers that persist while schools refuse to expand capacity - disappear when they are seen to be the result of an input market where a queue of job applicants is used to allow the firm to select on worker - peer - quality (the result of an Akerlof-Yellen efficiency wage).
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DP-64 "Peer Effects in Higher Education," January 2003.
This paper was prepared as a chapter for College Decisions: How Students Actually Make Them and How They Could, edited by Caroline Hoxby for publication by the University of Chicago Press for the NBER. In this chapter, we describe the potential significance of student peer effects for the economic structure and behavior of higher education. Their existence would motivate much of the restricted supply, student queuing, and selectivity - and institutional competition via merit aid and honors colleges - that we see in American higher education; their (appropriate) non-linearity could justify the resulting stratification of higher education as an efficient way to produce human capital. In addition, we use data from the College and Beyond entering class of 1989, combined with phonebook data identifying roommates, to implement a quasi-experimental empirical strategy aimed at measuring peer effects in academic outcomes. In particular, we use data on individual students' grades, SAT scores, and the SAT scores of their roommates at three schools to estimate the effect of roommates' academic characteristics on an individual's grades. The results suggest that, for two of the three schools used, students in the middle of the SAT distribution do somewhat worse in terms of grades if they share a room with a student who is in the bottom 15 percent of the SAT distribution. Students in the top of the SAT distribution appear often not to be affected by the SAT scores of their roommates. These results are similar to those reported in earlier research using data from Williams (Zimmerman) and Dartmouth (Sacerdote).
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DP-63 "Impatience and grades: Delay-discount rates correlate negatively with college GPA," May 2002.
Because the rewards of academic performance in college are often delayed, the delay-discounting model of impulsiveness (Ainslie, 1975) predicts that academic performance should tend to decrease as people place less weight on future outcomes. To test this hypothesis, we estimated (hyperbolic) discount rates for real delayed monetary rewards ($10 to $20) using second-price auction procedures with 247 undergraduates at two liberal arts colleges. College GPA was reliably correlated with discount rates, r = -.19 (p = .003), and remained reliable after partialling out SAT scores. The results add to the external validity of the discounting model of impulsiveness, and point to a possible contributor to academic performance of interest in the study of higher education.
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DP-62 "Access: Net Prices, Affordability, and Equity At A Highly Selective College," December 2001.
All of the financial aid decisions at Williams College for the past fourteen years - nearly 14,000 of them - were used to see how much students actually paid for tuition, room, board, and fees to go to that highly selective and expensive school - their net prices. Williams practices need blind admission with full need-based financial aid and gives neither merit nor athletic scholarships - a family's economic circumstances are the only reason for a price adjustment. So these data can answer the motivating question of the study, "Can highly able low income students reasonably aspire to go to the best and most expensive colleges in the country?" Does need-blind admission and full need financial aid, in other words, really work to serve merit and equity at the same time? With income and net price data on all aided students and income data for families at the 95th and 99th percentiles of the US income distribution who pay the full sticker price, we can describe the net price pattern across the whole student population as pricing policies have evolved at Williams (and similarly at other highly selective schools). The end point - in the current academic year - sees a remarkable similarity in the shares of income paid for a year at Williams. Aided students across the five income quintiles pay, on average, 11% to 19% of their pretax family incomes - the lowest income quintile paying the smallest share - while those at the 95th and 99th percentiles, paying full price, spend 21% and 9% of their family incomes, respectively, for a year at Williams. One usefully concrete number: the average student in the bottom twenty percent of the income distribution pays $1,683 while the full tuition is $32,470.
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DP-61 "Peer effects, gender and intellectual performance among students at a highly selective college: a social comparison of abilities analysis," October 2001.
A study was conducted to examine peer effects among undergraduates at Williams College, a highly selective four-year liberal arts school. Specifically, the study explored whether students would perform better writing about newspaper articles they read and discussed in academically homogeneous or heterogeneous groups of three. In homogeneous groups all three students were from either the top half or bottom half of their class on academic ratings assigned at the time of admission. Heterogeneous groups included students from both the top and bottom half of their class. The results showed that students in the top and bottom half performed similarly overall, but that students performed better in homogeneous groups, whether those homogeneous groups were made up of students in the top half or the bottom half of their classes. This pattern of results was stronger for men subjects than women subjects. The results were interpreted in terms of the principles of social comparison theory (Festinger, 1954).
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DP-60 ""Grow" the College? Why Bigger May Be Far From Better," October 2001.
This brief paper asks if the proposition that "growth is good" applies with equal force to private business and to private colleges and universities. An increasing appreciation of the fundamental differences in economic structure between business firms and academic institutions suggests that it's easy to make costly mistakes if those differences are ignored and "expanded sales" may often be one of them. The most fundamental problem rests, simply, on the fact that since the price paid by a college's customers covers only a fraction of the cost of providing their education, rather than yielding additional net revenues, enrollment expansion (other things equal) will generate additional uncompensated costs. Special circumstances can sometimes still justify increased enrollments, but they are circumstances very different from those facing a business firm.
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DP-59 "Saving, Wealth, Performance, and Revenues in US Colleges and Universities," May 2001.
Data on institutional saving in US higher education have not been available until now, yet they are useful in several ways. They describe how various types of schools are doing financially, and whether their present behavior is sustainable. They complete the picture of sources and uses of revenue for institutions of higher learning, which allows us to pin down the degree to which the charitable mission of these schools is responsible for their income. They describe a limit to aggressive price reductions. And they allow for some projections of what the economic structure of higher education will look like in the future. Financial data for U.S. higher education institutions from the U.S. Department of Education's Integrated Postsecondary Education Data System (IPEDS) are used to compute savings rates for 2109 institutions in 1995-6, and for 1581 institutions for a panel of the years 1986-7, 1990-1, and 1995-6. These data are available as Excel or Stata files.
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DP-58 "Economic Stratification and Hierarchy Among U.S. Colleges and Universities," November 2000.
Colleges and universities in the US differ markedly in their access to economic resources, hence in what they can do for their students. National (IPEDS) data are used here to describe the resulting hierarchy that's reflected in schools' spending on their students, the prices those students pay, and the subsidies they get in consequence. Both historical data and projections based on recent institutional saving suggest that economic disparities among institutions and their students are increasing. In a final section, the paper asks what to make of this: what we can say about "the right degree" of institutional disparity, so whether we have too much, too little, or about the right amount of differentiation.
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DP-57 "Undergraduate Financial Aid and Subsequent Alumni Giving Behavior," November 2000.
Data on 2,822 Vanderbilt University graduates are used to investigate alumni giving behavior during the eight years after graduation. A two stage model accounting for incidental truncation is used to first estimate the likelihood of making a contribution and second estimate the average gift size conditional on contributing. The type of financial aid received as an undergraduate appears to have a greater influence on subsequent alumni generosity than the amount received. Adding some scholarship to a loan-only package or eliminating all loans from a mixed loan-grant package increases the likelihood of a subsequent contribution. Increasing the total size of the package or altering the proportions of an already mixed package appears to be inconsequential for future donations. Students who receive small merit scholarships contribute more as alumni than students who receive either no merit scholarship or a large merit scholarship.
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DP-56 "Where Is Aggressive Price Competition Taking Higher Education?" June 2000.
It is increasingly clear that price competition is escalating in the market for higher education. We attempt to understand how price competition would work in higher education and explore the likely long run equilibrium structure of prices in that context. We draw inferences using both microeconomic theory and historical parallels found in the market for graduate education. Our analysis suggests that negative prices are likely to prevail at the wealthiest colleges and universities. Using data from IPEDS we estimate the resulting distribution of prices and school quality. While price competition may increase attendance by low income students at the wealthiest colleges and universities, it is unclear how they will fare at schools with middling wealth and resources. Further, schools with less accumulated wealth will be particularly vulnerable to any ensuing price competition. While our conclusions must be interpreted with caution, they do suggest some cause for alarm.
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DP-55 "Social Comparison and Peer Effects at an Elite College," May 2000.
A study was conducted to see whether peer effects could be observed among undergraduates at Williams College, an elite four-year liberal arts school. Specifically, the study explored whether students in the bottom third of their class, with average SAT's of about 1300, would perform better in writing about newspaper articles they read and discussed in groups of three if the two others in the group were academically superior -- from the top third of their class, with SAT's averaging about 1500 -- rather than similar -- also from the bottom third of the class. The results showed that women subjects performed better if their discussion partners were from the top third of the class, but men did better if their discussion partners were from the bottom third. Alternative analyses comparing subjects who had better or worse discussion partners as determined by the quality of their peers videotaped discussion statements, showed that across gender subjects did better written work when their discussion partners were better. The results were interpreted in terms of the principles of social comparison theory (Festinger, 1954).
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DP-54 "The Positional Arms Race in Higher Education," April 2000.
The market for undergraduate education has many similarities to an arms race. A school's position - relative to other schools - determines its success in attracting students and student quality. Its position, in turn, is largely determined by the size of its student subsidies, the difference between its educational spending and the net tuition it charges its students (or, much the same thing, how much their students have to pay for a dollar's worth of educational spending). High-subsidy schools spend the most per dollar of tuition so that 'bargain' attracts the highest quality students. To change its position, a school must spend more or charge less - and find the resources to support it. The positional arms race suggests why competition from a school further down in the hierarchy forces a response more effectively than competition from above and why it's been typical of higher education that costs rise to reposition, but prices don't fall.
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DP-53 "So You Want to Earn a Ph.D. in Economics: How Long Do You Think It Will Take?" March 2000.
The elapsed time taken to earn a Ph.D. in economics is analyzed with data from 620 (of about 950) 1996-97 Ph.D.s. The median is 5.3 years. A duration model indicates that those students at several of the most highly regarded programs, those supported by no-work fellowships, and those holding a prior masters degree finish faster than others. Americans, those who start jobs before completing their degree, and those who have children take longer. Kids slow the progress of women, but not of men. The only difference among fields is a longer time required for industrial organization and international economics. There is no difference in time-to-degree between men and women, married and single students, older and younger students, and those enrolled in larger or smaller Ph.D. programs. Fellowship support is more important for speeding the progress of women than that of men.
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DP-52 "Peer Effects in Academic Outcomes: Evidence from a Natural Experiment," November 1999.
This paper uses data from Williams College to implement a quasi-experimental empirical strategy aimed at measuring peer effects in academic outcomes. In particular, data on individual student's grades, SAT scores, and the SAT scores of their roommates are used. It is argued that first year roommates are assigned randomly with respect to academic ability. This allows measurement of differences in grades of high, medium, or low SAT students living with high, medium or low SAT roommates. With random assignment these estimates would provide compelling estimates of the effect of roommates' academic characteristics on an individual's grades. The paper also considers the effect of peers at more aggregated levels; in particular, the effects associated with different "academic environments" in clusters of rooms that define distinct social units. The results suggest that peer effects are almost always linked more strongly with verbal SAT scores than math SAT scores. Students in the middle of the SAT distribution may do somewhat worse in terms of grades if they share a room with a student who is in the bottom 15 percent of the verbal SAT distribution. Students in the top of the SAT distribution are least affected by the SAT scores of their (room or entry) peers. The effects are not large, but are statistically significant in many models.
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DP-51 "Peer Influences Among College Students: The Perils and the Potentials," September 1999.
Students' intellectual, social and personal development is highly influenced by peers during the college years. These changes can be understood in terms of social comparison theory, which outlines the consequences for group dynamics of people's need to evaluate their opinions and abilities. Discussion aimed toward opinion consensus and competition aimed toward improving ability levels promote the development of intellectual capacities and a range of other abilities. Discussion and competition also promote the definition and polarization of values. An expanded account of social comparison processes considers the further group consequences of the need for self-esteem. The distinction between informational and normative social influence underlines the importance of people's standing in groups for their self-concepts and self-esteem. Social identity theory expands these accounts to consider the implications of self-esteem needs for intergroup competition, discrimination and hostility. Leadership within groups is critical in countering the destructive consequences of tendencies toward fragmentation of larger groups into smaller homogeneous groups which think and act in extreme ways and which enact ingroup favoritism and outgroup discrimination.
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DP-50 "Students Educating Students: The Emerging Role of Peer Effects in Higher Education," April 1999.
The quality of the education a student gets at a college or university depends both on the school's resources - faculty, facilities, libraries - and importantly on the quality of his or her fellow students. He or she simply learns more - better, faster, more deeply - in the company of able students than with weak ones. Put that way, the proposition seems reasonable, persuasive, and appealing - we can usually get by simply by asserting it. But as we've looked more closely at those "peer effects," we have encountered an increasingly complicated, subtle, and often slippery set of issues: at base, not much is known about peer effects in higher education, despite their potential importance. The purpose of this paper is, in a sense, to describe the structure of our ignorance - what it looks like, why it matters, and what might be done to overcome it - a research agenda.
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DP-49 "For-Profit Higher Education: Godzilla or Chicken Little?" November 1998.
Student subsidies are large, ubiquitous, and very unevenly distributed in US higher education - covering, on average, two-thirds of a student's educational costs and ranging from $2,600 in the bottom decile of schools ranked by subsidy size to $24,000 in the top. So data on the distribution of those subsidies among colleges and universities identifies the schools that are most vulnerable to the emergence of an accredited, degree-granting for-profit sector: profits (price minus cost) are simply negative subsidies (cost minus price). Roughly a third of private two-year colleges, and doctoral and comprehensive universities are badly protected by their meager student subsidies that put them in the bottom ten percent. In the top decile, with large entry barriers erected by large student subsidies, schools can worry less about survival but no less about for-profit "cherry picking" within their curricula and programs as firms move to take over those courses that give students the smallest subsidies.
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DP-48 "The Effect of Historically Black Colleges on Wages of Black Students: An Analysis by Gender," October 1998.
This study considers the effect of attending Historically Black Colleges and Universities (HBCUs) on wages of black students. A model is developed to estimate reduced form wages equations conditioned on the decision to attend a four year HBCU, non-HBCU or no four year institution. Models are then estimated separately for men and women. Men and women both benefit in terms of wages, conditional on the decision to attend an HBCU. However, HBCU attendance may be beneficial to a broader population of men than women.
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DP-47 "What's Been Happening to Higher Education? Facts, Trends, and Data. 1986-7 to 1994-95," March 1998.
There's a new "global" way of organizing the economic information about an individual college or university that leads to a new way of tracking and understanding the changes that have been overtaking higher education, nationally. The paper gives a simple introduction to this way of looking at colleges and universities, defining the major relationships between prices, costs, and subsidies that govern these schools, then applying this structure to the analysis of national economic data from 1986-87 to 1994-95 for most of the colleges and universities in the U.S.. Many of the results revealed by this approach are already quite commonly known (like the fact that sticker prices are rising), but take on new meaning in this context (rising sticker prices are used by different schools for very different purposes).
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DP-46 "A Guide to Measuring College Costs," January 1998.
This paper reviews the major conceptual and practical problems that emerge in estimating the cost of producing a year of undergraduate education. The three major areas discussed are the complicated issues in estimating the yearly cost of physical capital (the cost of using land, buildings, and equipment), the treatment of student financial aid (as a legitimate cost of producing education or simply a price discount), and the cost allocation problems inherent in separating out those costs generated by undergraduate education in a complicated "multi-product" university.
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DP-45 "College Costs: Subsidies, Intuition, and Policy," November 1997.
College students pay only a fraction of the cost of their education. Large student subsidies - paying two-thirds of the cost at the average US college or university - are the central fact in the economics of higher education. Because prices (net tuitions) don't cover costs, the economics of colleges and universities is different in quite fundamental ways from that of the for-profit business firms that shape our national intuition and define our common sense. So it is often the case that what's true about colleges and universities and higher education is counter-intuitive and what's sensible is simply wrong. This paper describes the economic structure of a college or university, presents national data on the size and distribution of student subsidies, and demonstrates the often-perverse effects they create for public policies and expectations that ignore them.
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DP-44 "Thinking Seriously About Paying for College: The Large Effects of a Little Thought," September 1997.
The high price of attending college has generated a great deal of discussion and some heated controversy in recent years. Popular opinions generally depict college prices as unreasonable, unjustified, and unpayable. In the context of thinking seriously about the ways colleges and universities ought to approach the difficult issue of pricing in higher education, we survey students at various institutions in order to seek insight into how students think about the amount they pay, and what they get for their money. More specifically, we ask students to seriously consider the subsidy associated with their educational program, and the effect that a change in the size of this subsidy might have on this program. As a result of this exercise, we find that students tend to regard the price of their education as significantly more reasonable than they had prior to thinking seriously about its cost.
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DP-43 "Financing Undergraduate Education: Designing National Policies," September 1997.
In this paper we summarize our recent work analyzing pricing, aid, access and choice in American higher education, and we draw out implications from those findings for national higher education policy. We find that real increases in net tuition have impaired access and choice principally for students from low-income families. The Clinton administration education proposals, rather than addressing the needs of this group, focus on providing tax benefits to middle and upper-middle income families. We argue that the nation needs a higher education program that provides more assistance to the students for whom the issue of college affordability is the most pressing.
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DP-42 "Why Can't a College Be More Like a Firm?" May 1997.
A sophisticated and widespread intuition is supported by our experience with business firms. And it is confirmed, influenced, and expanded by the formal microeconomic analysis of those firms and their markets. This paper asks if that theory and intuition are helpful for understanding colleges and universities and the higher education industry. The answer, even at this early stage of investigation, has to be "Yes, but..." Six quite fundamental economic characteristics of colleges and universities make the familiar analogy with firms sometimes inappropriate and sometimes simply wrong. Most fundamental are: that the price a customer pays for the product covers, on average, only one-third of the cost of its production -- the average student in the US pays 30 cents for a dollars worth of higher education --; that those student subsidies are very different at different institutions, creating the highly skewed but stable hierarchy that is the dominant feature of the industry; and that fellow-student quality is a key input to educational quality -- students educate students. A start is made here on developing the implications of those facts but much remains to be done.
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DP-41 "Subsidies, Costs, Tuition and Aid in US Higher Education: 1986-87 to 1993-94," April 1997.
Data from a panel of 2,269 colleges and universities track the major changes in educational costs, prices, subsidies, and financial aid over the seven eventful years from 1986-87 to 1993-94. The ability to give student subsidies is recognized as a central determinant of an institutions economic circumstances and strategy. Subsidy resources allow a school to sell its educational services at a net price below the costs of their production. So prices are always less than costs -- how much less depends on a schools resources.
Using a global accounting frame, the paper emphasizes the inter-relatedness of institutional decisions on enrollments, subsidy resources, sticker prices, financial aid, and general subsidies. Public and private sectors faced very different circumstances and behaved very differently. Within each sector, Carnegie school types lived in different worlds. Public Research Universities faced sharply reduced public support but countered it with restricted enrollments and higher tuitions that allowed them to maintain and even expand educational quality. Public Two-year Colleges, in contrast, were well protected by public policy so that even as they absorbed a twenty-five percent increase in enrollments, they maintained educational expenditures with only very modest increases in net tuition ($62 over seven years). The prices that students paid for a dollars worth of education changed between public and private institutions, between Research Universities and Two-year Colleges within the public sector, and between high- and low-subsidy schools in both sectors -- and these changes appear to have influenced students enrollment choices.
Increases in sticker prices either reallocate subsidies or raise net tuitions.
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DP-40"The Economic Structure of Higher Education: Subsidies, Customer-inputs, and Hierarchy"
Misunderstanding its economic structure will make it difficult to predict the effects of changes that are sweeping higher education: increasing price competition, the weakening of tenure, taxpayer revolts, new technologies, the reduction in research support, etc. And while there is considerable utility in the parallels that see colleges as firms selling educational services in a market to student-customers, colleges and universities remain different in some very fundamental economic ways from the for-profit firms that inform our intuitions and economic theories. This paper follows Hansmann, James, Rothschild-White, Baku, and Clotfelter, inter alia, to describe the economic structure of higher education and identify its unique characteristics and circumstances. Chief among these: only its customers can provide key inputs to production so the firm cares about who it sells to; firms always sell their product for much less than the average or the marginal cost of its production, subsidizing their customers from donated resources; and the ability to support such subsidies differs dramatically among firms, creating a strongly hierarchical market. Rather than push a rigorous formal economic model as far toward this reality as possible, in this paper the stick is picked up from the other end to push the realities of higher education as far toward the economists framing as possible. The result appears to be both preliminary and highly promising.
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DP-39 "Subsidy Shock: Reshaping Judgments of College Sticker Prices"
Three studies tested the hypothesis that 1) people know very little about the extent to which colleges and universities subsidize their students and 2) providing people with subsidy information leads them to judge the prices that such schools charge as more reasonable. The results offered qualified support for both hypotheses. First, people were generally aware of the subsidies provided by public institutions but were in many cases unaware of the subsides provided by private colleges and universities. Second, after receiving subsidy information, people increased their ratings of the reasonableness of the prices of private schools but not public schools. This was true even when they did not initially underestimate the private schools subsidy. More research is needed to explain precisely why people judge a private schools price as more reasonable after they receive specific information about its subsidy.
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DP-38 "Impact of College Quality Choices on Wages: Are There Differences Among Demographic Groups?"
There has been a rising interest in understanding better the impact of college choices on wages that has been motivated by concerns about increasing wage inequalities, about increasing costs of elite colleges and about the perceived increasing roles of highly educated individuals in maintaining international competitiveness. Previous studies on the impact of college quality on wages generally have been subject to two limitations: (1) They have not considered the differential impact for different demographic groups identified by race and gender. (2) They have not considered the choice dimensions with regard to time in college and college quality (with two recent exceptions). This study addresses both of these limitations. Estimates are obtained of the impact of time in college and of college quality choices on wages for four demographic groups based on an explicit dynamic framework. These estimates suggest that treating time in college and college quality as choices within a dynamic framework affects fairly substantially the estimated effects. Based on these results, most previous studies may have overestimated the impact of both college quality and time in college because of the failure to deal with such choices and, in a lesser but still substantial number of cases, because of the failure to control for the quality dimensions of pre-college education. The estimates also suggest that there are important demographic differences. The estimated wage benefits from higher college quality and more time in college tend to be highest for nonwhite males and next for nonwhite females, then white females and least for white males. For some members of all groups there appear to be some incentives for increasing college quality (by paying somewhat higher tuitions or whatever), more so for those who are longer in college because of interactions between college quality and time in college. But these incentives differ strongly across groups, being much higher for nonwhite males and much lower for white males, with the females in between. For nonwhites (again stronger for males than females) there also appear to be incentives to increase time in college. For whites, in contrast, the estimated net gains do not appear to create such incentives at least at a 4% real discount rate -- a result that contrasts with common interpretations of semilog wage relations. The results for nonwhites raise important questions regarding why there is unrealized potential for reaping net benefits from more time in college or attending higher quality colleges. A number of possible answers to this question -- poor information about the impact of college, imperfect capital markets for financing college, poor information about college quality differentials, discriminatory admissions -- may have important policy implications on both equity and efficiency grounds.
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DP-37 "The Economic Analogy"
This paper examines the strengths and weaknesses of the analogy of higher education to a for-profit industry where schools are seen as firms and students as customers. It looks at two areas of college finance. First, the authors examine the surprising fact that nearly all colleges, equally public and private, use non-tuition resources to heavily subsidize the cost of a students education. So in the average college or university, on the basis of 1991 US data, a student paid $3,101 for a $10,653 education, getting a $7,551 subsidy that covered more than 70% of costs. This is important in understanding a colleges strategic decisions about size, tuition, sticker price, and aid and in determining how successful the school will be in attracting high-quality students. A school with more non-tuition resources, all else the same, can offer students a better deal for the same education, which drives demand and allows the school to select for student quality.
The authors go on to discuss the strategic nature of financial aid decisions. While in the recent past financial aid was a rather separate item from enrollment planning, it is increasingly thought of as a critical tool in helping a college meet its admissions and revenue goals. Admissions and aid statistics for a mythical university are presented and the consequences of various admissions-financial aid scenarios are explored.
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DP-36 "Cohort Size Effects on US Enrollment Decisions"
Although considerable effort has been expended on measuring the returns to education in the U.S. and on modeling the individual decision-making process in human capital investment, surprisingly little work has been done in terms of attempts to forecast college enrollment rates in the U.S. population, despite the obvious need for such forecasts. In the relatively small subset of forecasting literature, cohort size variables tend to play a significant role, and one of the most successful models, in terms of forecasting accuracy, appears to be the work of Ahlburg, Crimmins and Easterlin (1981), which predicted an increase in enrollment rates throughout the 1980s when most other models were predicting a decline. It is important to re-assess these models now, since for the first time since the 1960s both enrollment rates and the size of college-aged population appear to be on the rise. Although total enrollments for women increased substantially during the 1970s and 1980s, for males the large fluctuations in enrollment rates and in population size largely canceled each other out, so that there was virtually no change in total enrollments over those two decades.
The purpose of this study has been to draw together this literature in a more unified framework where it is possible to compare seemingly different results and make use of the information they provide to develop an improved model. In doing so it has been possible not only to demonstrate that cohort size effects have indeed been significant over the past forty-five years, but also to explain the mechanism underlying these effects. Projections of enrollment rates made using an updated version of the Ahlburg-Crimmins-Easterlin model indicate that total enrollments of U.S. residents aged 18-24 may increase by 30% of the next decade, from the current 8.8 million to 11.4 million.
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DP-35 "Physical Capital and Capital Service Costs in US Colleges and Universities: 1993"
This paper reports on the distribution of capital stocks and the costs of capital services in 3,148 colleges and universities in 1993. The $387 billion in physical capital estimated for these institutions imply that $40 billion in yearly capital service costs are incurred in US higher education, adding roughly 31% to reported current costs. While private Research-I Universities, among major Carnegie types, have the most capital per student ($143,954) and public Two-Year Colleges have the least ($14,831), a greater disparity in capital stocks appears when schools are differentiated by wealth -- their average subsidies per student. The top decile of private schools average over $150,000 of physical capital per student and the bottom decile of public and private schools have less than $10,000. The distortion of educational costs that results from omitting capital services range from 25% for Research-I Universities, both public and private, to more than 40% for private Liberal Arts-I Colleges and public Comprehensive-II Universities. Clearly, capital service costs are large and unevenly distributed within higher education, creating serious distortions in any economic analysis that ignores them. The data are available as FoxPro files.
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DP-34 "Are We Keeping College Affordable? Student Aid, Access, and Choice in American Higher Education"
In our 1991 Brookings book, Keeping College Affordable: Government and Educational Opportunity, we examined whether our nation's colleges and universities were affordable for Americans of all economic and social backgrounds, and outlined policies aimed at the efficient allocation of government and private resources towards that aim. In this paper we review, update, and expand our earlier analysis. Of particular interest is how the combination of government funding and institutional financial and scholarship aid combine to explain observed trends in student access and choice.
We begin with an overview of changes over time in the finance of American colleges and universities, focusing on the role of governments, institutions and families in meeting college costs. We then turn to a consideration of the implications of these recent financing trends for the issue of access to college for people of all economic backgrounds. Our focus here is on the bearing of these recent trends in enrollment and pricing on our understanding of the impact of prices and student aid on the demand for college enrollment. We proceed next to examine evidence on the enrollment destinations of students from different income groups and find that students' choices about where to go to school seem to be increasingly constrained by finances. We conclude by speculating about the future and making some observations about public policy.
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DP-33 "Capital and Capital Service Costs in 2700 US Colleges and Universities"
Using data generated for a study of student subsidies (in WPEHE Discussion Paper No. 32), this paper reports on the distribution of capital stocks and the costs of capital services in 2700 colleges and universities in 1991. The $330 billion in physical capital estimated for these institutions imply that $40 billion in yearly capital service costs are incurred in US higher education, adding roughly 33% to reported current costs. While private Research-I Universities have the most capital per student ($143,557) and public Two-Year Colleges have the least ($14,540), a greater disparity in capital stocks appears when schools are differentiated by wealth -- their average subsidies per student. The top decile of private schools have over $150,000 of physical capital per student and the bottom decile of public schools have less than $10,000. The distortion of educational costs that results from omitting capital services range from roughly 25% for Research-I Universities, both public and private, to more than 40% for private Liberal Arts Colleges and public Comprehensive Universities. Clearly, capital service costs are large and unevenly distributed within higher education, creating serious distortions in any economic analysis that ignores them. The data are available as FoxPro files.
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DP-32 "Costs, Prices, Subsidies, and Aid in U.S. Higher Education"
Studies of student subsidies in US higher education -- how much more it costs to educate a student that he or she pays -- have focused on the distribution of subsidies by student characteristics : This paper turns to the very different question of institutional strategies with respect to price, costs, and aid to ask , Enrollment and financial data from 2687 US colleges and universities for 1991 are used to describe price, costs, and aid patterns for public and private institutions by Carnegie type and, most important, by size distribution of the subsidies among schools. These appear to be defining characteristics of both individual colleges and universities and, more fundamentally, of the economic structure of higher education.
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DP-31 "Skills, Innovations and Values: Future Needs for Postsecondary Education"
We discuss the current context in which colleges and universities find themselves and then speculate about the future state of the nation and of its educational needs. The current context is summarized in an examination of trends in revenue sources and charges for different groups of higher education institutions, trends in the types of tuition discounting, and trends in the postsecondary educaton destinations of students from different income backgrounds. The future speculation falls in to three broad headings: skill development and professional training; research and innovation; and values education and social criticism.
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DP-30 "Measuring the Effect of Attending Historically Black Colleges and Universities on Future Wages of Black Students"
This paper estimates the effect of attending historically black colleges and universities (HBCUs) on future wages of black students. The analysis attempts to determine if HBCUs have a causal effect on wages by first modelling and estimating all the choices available to black high school graduates. Wages are then estimated conditional on the determinants of this choice. Data from the National Longitudinal Survey of the Class of 1972 (NLS-72) are used to estimate the models. Students that attend HBCUs appear to come from lower in the potential wage distribution than students that attend mixed or historically white institutions. The value added, in terms of future wages, from attending appears to be over 30% for some individuals. These results suggest HBCUs played an important role in the labor market success of black students in the 1970s.
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DP-29 "College Choice and Family Income: Changes Over Time in the Higher Education Destinations of Students From Different Income Backgrounds"
McPherson and Schapiro analyze data from the American Freshman Surveys of 1980, 1989, and 1993 to determine how family income has affected choice of institution, and how this has varied over time. A major topic of analysis is middle income melt, a popular conception which holds that rising net tuition at private institutions has forced middle-income students to switch to less costly institutions. They find that although the percentage of students attending private colleges from middle-income families has fallen, this is only because the percentage of students in higher education in general from middle-income families has fallen; the proportion of middle-income students attending private universities and 4-year colleges has remained relatively stable. Instead, at least for the four-year private colleges, the decline in the proportion of high-income, full-pay students may explain their apparent financial pressures. High-income students have shifted to public and private universities and to public four-year colleges; along with the middle-income students, they have shifted away from public two-year colleges which has made these schools increasingly concentrated with low-income students.
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DP-27 "Expenditures and Revenues in American Higher Education"
This paper analyzes changes in expenditure patterns and revenue sources for the majority of private and public non-profit colleges and universities from the years 1986-87 to 1988-89 and 1990-91. It compares the changes between public and private schools by Carnegie types, uncovering similar trends in all types. Net spending per student is greater at private institutions than at public ones--and is increasing relative to them, largely because of declines in state and local appropriations to public schools. Their reaction to cuts in appropriations has been to cut spending with future benefits (i.e., library, plant maintenance) rather than spending on current students. Financial aid is increasing dramatically at all types of institutions, but net tuition still increases, posing concerns about what is happening to the access to higher education of those less able to afford it.
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DP-26 "Predicting Higher Education Enrollment in the United States: An Evaluation of Different Modeling Approaches"
The purpose of this paper is to assess the state of the art in model-based enrollment prediction for U.S. higher education. We review available studies, consider methodological and data-availability issues raised by the approaches reflected in the literature, and report on a study comparing the forecast performance of several alternative models. We conclude that combining the results from disaggregated forecasting models and trying alternative approaches is a much better option for predicting higher education enrollments than searching for a universal model that works for all groups at all times.
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DP-18 "The College Investment Decision: Direct and Indirect Effects of Family Background on Choice of Postsecondary Enrollment and Quality"
This paper focuses on two components of the postsecondary schooling decision process. The first concern is to investigate the implications of the endogeneity of high school scholastic achievement in analyzing postsecondary school choice. The second concern is to incorporate an explicit analysis of choice of institutional quality into the investigation of postsecondary enrollment behavior. Our theme in both these components is the role of family background. Our basic data source is the National Longitudinal Study of the High School Class of 1972 (NLSHS72). Family background characteristics show the expected effect on scholastic achievement: students from families with high income, better educated parents, or parents with higher socioeconomic status generally do better on tests of scholastic achievement. Scholastic achievement is positively related to attending a four-year postsecondary school, but not to attending a two-year school. The estimated effects of achievement are larger with achievement treated as endogenous than when achievement is treated as exogenous. We find similar influences of family background directly on postsecondary enrollment and quality.
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DP-8 "Projections of College Costs and Affordability: 1990-2010"
This paper presents alternative forecasts of future trends in the affordability of higher education. In presenting simulations of future college prices, student aid, and family income, we consider the effects of variation in economic growth, governmental support, and costs of providing higher education. Two principal findings are (1) that the higher education sector is highly vulnerable to persistent weak performance of the economy and (2) that under a variety of circumstances the relative affordability of private four-year institutions compared to public four-year and two-year institutions is likely to decline.
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DP-3"The Implications of Grading Policies for Student Course Choice"
Utilizing panel data, we measure the responsiveness of student course choice to grades and asses the impact on the distribution of enrollment across departments of differences in grading policies. We show that grades strongly influence course choice; this influence remains powerful after accounting for student responsiveness to signals of comparative advantage contained in grades. Enrollments are being skewed towards high-grading departments. Finally, we present evidence that, if the aim of grading is to convey information about students relative strengths and weaknesses, greater uniformity in grading policies should be achieved by lowering grades in high grading departments.
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DP-2 "Progression to Graduate School from the 'Elite' College and Universities"
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