Accounting for Tuition Increases at U.S. Colleges

Aaron Hedlund and Grey Gordon
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Aaron Hedlund: University of Missouri

No 1550, 2017 Meeting Papers from Society for Economic Dynamics

Abstract: We develop a quantitative model of higher education to test explanations for the steep rise in college tuition between 1987 and 2010. The framework extends the paradigm in Epple, Romano, Sarpca, and Sieg (2013) of imperfectly competitive, quality-maximizing colleges and embeds it in an incomplete markets, life-cycle environment. We measure how much changes in college costs, reforms to the Federal Student Loan Program (FSLP), and the returns to college have contributed to tuition inflation. Taken together, the changes can fully explain the tuition increases seen at U.S. colleges. Our findings suggest that the FSLP and college costs are the main drivers of college tuition.

Date: 2017
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