Equilibrium Price Responses to Targeted Student Financial Aid

Nano Barahona, Caue Dobbin and Sebastián Otero

No 33833, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We study how colleges adjust tuition in response to student financial aid, emphasizing the role of targeting. Our framework highlights two forces: a direct effect that increases tuition, and a composition effect that can reduce tuition when aid targets more price-sensitive students. Using a reform in Brazil’s student loan program, we document both effects empirically and estimate an equilibrium model to evaluate counterfactual policies. We find that merit-based targeting raises tuition by 2.2%, while need-based targeting lowers it by 0.8%, reflecting that lower-income students are more price-sensitive. These price effects have a strong impact on enrollment decisions.

JEL-codes: H22 H52 I22 I23 I24 L10 (search for similar items in EconPapers)
Date: 2025-05
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