Making College Affordable? The Impacts of Tuition Freezes and Caps

Abstract

Many state governments impose tuition regulations on public colleges in pursuit of college affordability. How effective are these regulations? We use a modified event study design to study how colleges' ``sticker price'' and institutional financial aid change during and after tuition caps and freezes in the United States from 1990 to 2013. While tuition regulations lower sticker prices during the regulation, colleges recoup losses through lowering institutional financial aid and more rapidly increasing tuition after the regulation has ended. Four-year colleges take advantage of the discrepancy between sticker price and net price - we estimate that regulations lower sticker price by 6.3 percentage points but at the same time lower institutional aid by nearly twice as much (11.3 percentage points). The gap widens over time: two years after the regulation has been lifted, sticker prices are 7.3 percentage points lower, and aid is 19.5 percentage points lower, than they would have been in the absence of the regulation. Two-year colleges rapidly increase tuition after the regulation - while there is a negative effect of 9.3 percentage points on sticker price during the cap/freeze, the negative effect disappears within three years of the end of the regulation. Net tuition discounts from caps and freezes vary widely across types of students; we find that while some students experience discount rates of up to 5.9 percentage points over four years in college, others must pay up to 3.8 percentage points more than they would have without the regulation. Students who receive financial aid, enter college right after the regulation is lifted, or attend colleges that are more dependent on tuition benefit less.