Individual and aggregate demand for higher education: the role of strategic scholarships

Abstract

Undergraduate enrollment increased over 50 percent nationally from 1973 to 1994. The proportion of high school graduates enrolling in college increased from 46.6 to 61.9 percent. These increases occurred despite increases in real tuition prices since 1985, constant (nominal) levels of federal Pell grants per recipient, and declining numbers of high school graduates. This dissertation examines the admitted applicant's decision to enroll and aggregate (state/county) enrollment at a large public institution;The aggregate enrollment model investigates the extent to which national trends in enrollment can be captured within the context of a model of enrollment demand at a specific university. State or national data sources do not allow sufficient time-series to test competing explanations for the increasing enrollment rates. A two stage process models the decision to attend a university as the product of the probability of attending college and the probability of attending the specific institution, conditional on college attenDance;;Analysis of college enrollment aggregated to the state or county level reveals that increased per capita income and increased expected returns to higher education have played major roles in increasing college enrollments. These factors led to rising college enrollments, even as rising tuition lowered college incentives. The model finds freshmen enrollment is negatively related to price and distance, with an inelastic own-price response;The individual level model determines the applicant's reservation price. Four issues are discussed. (1) Can increases in tuition be offset with equal increases in grant aid? (2) Holding the probability of enrollment constant, how much must tuition increase to increase a desirable student attribute (academic ability, protected group status)? (3) How can institutions maximize revenues by price discriminating, and do they? (4) Based on computed reservation prices, what are the characteristics of the demand curve for the institution?;The probit estimates reveal that the response to tuition is larger than grant aid and women, minorities, and high ability students have higher reservation prices. The last dollar of grant aid decreases net revenue by more than one dollar and the institution is not maximizing revenue. Finally, the own-price elasticity in the individual level model is also inelastic.