Price Discrimination and Public Policy in the U.S. College Market

Ian Fillmore ()
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Ian Fillmore: Washington University in St. Louis

No 2021-028, Working Papers from Human Capital and Economic Opportunity Working Group

Abstract: In the United States, the federal government grants colleges access to a student's Free Application for Federal Student Aid (FAFSA) which facilitates substantial price discrimination. This paper is the first to estimate the consequences of allowing colleges to use the FAFSA in their pricing decisions. I build and estimate a structural model of college pricing and simulate counterfactuals wherein some or all of the FAFSA information is restricted. I find that if FAFSA information were restricted, 13 percent of students attending elite colleges would be inefficiently priced out of the elite market. Nevertheless, student welfare would rise as colleges charged the majority of students lower prices. Colleges do use the FAFSA to transfer resources from high- to low-income students on average, but this redistribution is highly imprecise: allowing colleges to use the FAFSA harms one-third of low-income students while one in seven high-income students actually benefit.

Keywords: price discrimination; higher education; first-price auction; Bayes-Nash equilibrium; financial aid; Free Application for Federal Student Aid; FAFSA (search for similar items in EconPapers)
JEL-codes: I20 L11 (search for similar items in EconPapers)
Date: 2021-06
New Economics Papers: this item is included in nep-com and nep-ind
Note: MIP
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Citations: View citations in EconPapers (1)

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http://humcap.uchicago.edu/RePEc/hka/wpaper/Fillmo ... c-policy-college.pdf First version, June 2021 (application/pdf)
https://hceconomics.uchicago.edu/file-upload/onlin ... cy-us-college-market Online appendix (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:hka:wpaper:2021-028

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