Full Citation

Title: The Incidence of Federal Subsidies in For-profit Higher Education

Citation Type: Miscellaneous

Publication Year: 2014

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Abstract: Over the past few decades, tuition prices and enrollment at for-profit institutions of higher education have grown significantly. With this, students have relied more heavily on federal financial aid to relieve their financial burdens in pursuing a postsecondary degree. For-profit higher education is a differentiated products oligopoly; schools are differentiated both horizontally (individual preferences) and vertically (quality differences). In such a market, the pass-through, or incidence, of federal aid is not clear a priori. This paper finds to what extent federal financial aid improves the consumer surplus of students and to what extent it improves the producer surplus of the schools. To incorporate the market structure of for-profit higher education, I estimate a model of higher education choice (demand) and university pricing (supply) to compute the welfare effects of Federal Student Aid. I estimate that on average, 57 percent of federal grant aid and 51 percent of federal loan aid is passed through to for-profit colleges. In addition, I find that both federal grant aid and federal loan aid improve producer surplus more than consumer surplus.

Url: http://gradstudents.wcas.northwestern.edu/~cvl901/lau_jmp.pdf

User Submitted?: No

Authors: Lau, Christopher V.

Publisher: Northwestern Unviersity

Data Collections: IPUMS USA

Topics: Education, Other

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