Accounting for the Rise in College Tuition

Grey Gordon and Aaron Hedlund ()
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Aaron Hedlund: University of Missouri

No 2015-015, CAEPR Working Papers from Center for Applied Economics and Policy Research, Department of Economics, Indiana University Bloomington

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 quality-maximizing college paradigm of Epple, Romano, Sarpca, and Sieg (2013) and embeds it in an incomplete markets, life-cycle environment. We measure how much changes in underlying costs, reforms to the Federal Student Loan Program (FSLP), and changes in the college earnings premium have caused tuition to increase. All these changes combined generate a 106% rise in net tuition between 1987 and 2010, which more than accounts for the 78% increase seen in the data. Changes in the FSLP alone generate a 102% tuition increase, and changes in the college premium generate a 24% increase. Our findings cast doubt on Baumol's cost disease as a driver of higher tuition.

Keywords: Higher Education; College Costs; Tuition; Student Loans (search for similar items in EconPapers)
JEL-codes: D40 D58 E21 G11 (search for similar items in EconPapers)
Pages: 60 pages
Date: 2015-09
New Economics Papers: this item is included in nep-edu
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Citations: View citations in EconPapers (1)

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Related works:
Chapter: Accounting for the Rise in College Tuition (2017)
Working Paper: Accounting for the Rise in College Tuition (2016)
Working Paper: Accounting for the Rise in College Tuition (2015)
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