Tuition Subsidies Research Articles

Does the Format of a Financial Aid Program Matter? The Effect of State In-Kind Tuition Subsidies

This paper examines the importance of format in aid programs, focusing on state appropriations to public postsecondary institutions. These funds subsidize costs for in-state students, but they may also influence choices between institutions due to their in-kind format. Using the conditional logistic choice model and extensive match-specific information, the paper approximates the choice between nearly 2700 college options to examine the effect of several dissimilar state systems. The results suggest that the level and distribution pattern of subsidies strongly affect decisions. If the aid could instead be applied to any in-state college, up to 29% more students would prefer to attend private four-year colleges.

Human Capital Policy

This paper considers alternative policies for promoting skill formation that are targeted to different stages of the life cycle. We demonstrate the importance of both cognitive and noncognitive skills that are formed early in the life cycle in accounting for racial, ethnic and family background gaps in schooling and other dimensions of socioeconomic success. Most of the gaps in college attendance and delay are determined by early family factors. Children from better families and with high ability earn higher returns to schooling. We find only a limited role for tuition policy or family income supplements in eliminating schooling and college attendance gaps. At most 8% of American youth are credit constrained in the traditional usage of that term. The evidence points to a high return to early interventions and a low return to remedial or compensatory interventions later in the life cycle. Skill and ability beget future skill and ability. At current levels of funding, traditional policies like tuition subsidies, improvements in school quality, job training and tax rebates are unlikely to be effective in closing gaps.

Understanding Educational Outcomes of Students from Low-Income Families: Evidence from a Liberal Arts College with a Full Tuition Subsidy Program

Issues related to the schooling attainment of children from low income families arise frequently in current education policy debates. In part due to a recent increase in the disparity between the wages of college graduates and the wages of individuals with less than a college degree, there has been a specific interest in understanding why a very high percentage of children from low income families do not graduate from college and why the college graduation rates of children from low income families are substantially lower than those of children from other families. Using unique new data obtained directly from a high-quality liberal arts college that maintains a full tuition subsidy program (and large room and board subsidies) for all students, this paper provides direct evidence that reasons unrelated to the direct costs of college are very important in explaining these realities.

Understanding Educational Outcomes of Students from Low-Income Families

Issues related to schooling attainment of children from low-income families arise frequently in current education policy debates. There has been a specific interest in understanding why a very high percentage of children from low-income families do not graduate from college and why the college graduation rates of children from low-income families are substantially lower than those of children from other families. Using unique new data obtained directly from a high-quality liberal arts college that maintains a full tuition subsidy program (and large room and board subsidies) for all students, this paper provides direct evidence that reasons unrelated to the direct costs of college are very important in explaining these realities.

Financial Aid, Borrowing Constraints, and College Attendance: Evidence from Structural Estimates

The idea that borrowing constraints may preclude low-income youth from attending college is widespread. Here I will review some recent work on the importance of borrowing constraints and the impact of financial aid programs (i.e., guaranteed student loans and tuition subsidies) designed to counteract them. This work suggests that borrowing constraints have little effect on college attendance decisions. There is evidence that tuition subsidies play a modest role in reducing inequality in schooling and earnings. Most inequality, however, appears to be driven by unequal human-capital accumulation prior to college-going age. Empirical work on college attendance decisions has consistently produced two findings: (i) parents' income helps predict college attendance, even conditional on other observed characteristics of youth, and (ii) the effect of tuition on the probability of college attendance is greater for children from low-income families. There is some (mixed) evidence that (iii) the rate of return to education is higher for low-income youth. These findings are commonly viewed as strong evidence for borrowing constraints. Recent work by Stephen Cameron and James Heckman (1998) challenges these findings. Furthermore, other recent work (Keane and Kenneth Wolpin, 2001) shows that they are compatible with a model in which liquidity constraints have a negligible impact on college attendance rates. To understand this work, it is useful to consider a very simple discrete-choice model of college attendance decisions. The model has the following features:

Semiparametric Reduced-Form Estimation of Tuition Subsidies

The goal of this paper is to use a semiparametric form model to estimate the effects of various tuition subsidies. This approach expands on the tuition subsidy example in Ichimura and Taber (2000) in a number of dimensions. It has become common practice in the empirical literature to refer to any nonstructural empirical analysis as reduced form. This is not the traditional sense of the phrase. A classic form analysis (see e.g. Marschak, 1953) first specifies a structural model and then derives the form parameters in terms of the structural parameters. While many recent studies have asserted to taking a form approach, the structural parameters. While many recent studies have asserted to taking a form approach, the structural model which the form model should correspond is rarely specified. We explicitly specify a structural model and use the implied form structure to estimate the effect of tuition subsidy policies. Specifying the underlying model has the advantage of being explicit about the assumptions that justify the analysis. This avoids Rosenzweig and Wolpin's (2000) criticism of work on natural 'natural experiments' that often leaves these conditions implicit. Our structural model is based on the model studied by Keane and Wolpin (1999). It is highly nonlinear and allows for more unobserved heterogeneity than the typical simultaneous equations framework that most previous work has used in form estimation. Using hte specified structural model, we examine the assumptions discussed in Ichimura and Taber (2000) to justify form estimation of the policy effects(This abstract was borrowed from another version of this item.)

Restructuring the University System: What Level of Public Support?

It seems inevitable that universities in Canada will be increasing their reliance on tuition as a source of income. This paper works out an optimal tuition subsidy formula for a full tuition university system where investments in higher-education are treated by the tax system in the same way as investments in physical capital. The optimal subsidy is quite substantial in some cases. In general, with enlightened tax policy, there is no reason to fear that a full tuition regime will reduce the quality, equity, or accessibility of the university system.

Financing Higher Education in Australia: the case for SuperHECS1

This paper advocates and costs a reform package called SuperHECS, for the financing of Australian undergraduate education. SuperHECS is designed to give institutions more autonomy and more incentives to efficiency; to generate more student choice; to enhance the quality of teaching; and to be fair to all eligible Australians wishing to enter university. Under SuperHECS, a tuition subsidy of 50% of standardised costs would be paid directly to universities on actual load. Institutions only would set and receive fees, which could be paid through an income‐contingent loan scheme. Fee payments could be claimed as a deferred deduction against taxable income. SuperHECS should cost Treasury no more than do the current arrangements. 1Adapted from Miller and Pincus (1997). We thank Peter Karmel, Bruce Chapman and two anonymous referees for helpful comments.

An Alternative to Net Price

The theory of net price, as it applies to student demand for higher education, has become a problematic concept for administrators and policy makers. On the one hand, economic theory on higher education holds that students respond to a single net price [15]. On the other hand, enrollments do not fluctuate with changes in net price, which may influence some policy makers in institutions and government agencies to ignore the impact on enrollments of their pricing decisions. However, there is a growing body of research that suggests that students respond to both prices and price subsidies in their first-time enrollment [24, 34] and persistence decisions [1, 25, 32]. In this article we critically examine the applicability of net-price theory to higher education finance. Specifically, we examine the assumptions of the traditional net-price theory and of an emerging alternative approach to assessing the relationship between prices and student enrollment decisions. First, in a background section we summarize the origins of net-price theory and its uses in higher education finance, consider the emergence of an alternative differentiated pricing concept, and identify the assumptions of both positions. Second, we compare multiple ways of specifying prices for analyses of their effects on persistence. Third, we use the analysis to test both sets of assumptions and consider the implications of the findings. 1. Alternative Approaches to Price Response Over time, a theory of net price has evolved that has provided a foundation for government financing strategies and institutional pricing in higher education. In this section of the article we consider the origins of net-price theory and its application in higher education policy and the emergence of an alternative way of conceptualizing the relationship between prices and student enrollment decisions and compare the assumptions of both ways of viewing the relationship between prices and persistence. The Traditional Approach The concept of net price is embedded in human capital theory, which is integral to most public finance strategies in higher education. In Human Capital Theory, Gary Becker [2, p. 107] argued: Generally, the most important cause of differences in opportunities [to attend postsecondary education] is the availability of funds. He further argued that scholarships and loans are for accessibility. Thus the assumptions that students respond to a single net price and that reductions in net price for some populations can improve access were embedded in the original conceptualization of human capital theory. The Higher Education Act of 1965, enacted about the time Becker's book was first published, included major new loan and grant programs aimed at increasing access to higher education by providing new funds to students with financial need. The student-demand studies conducted in the early 1970s [for example, 3, 23] carried forward the assumption that students respond to net price [18]. The reviews of these studies generally concluded that low-income students were more price responsive to tuition than high-income students [15, 18]. Starting in the early 1970s, a series of planning models was developed so that the federal government and the states could assess the relative tradeoffs between funding institutions (thus providing a tuition subsidy for everyone who attends public institutions) and funding need-based student aid programs (thus reducing prices for those who were thought to be the most price responsive) [11, 21]. These planning models, which used price-response coefficients derived from the early student-demand studies, carried forward the net-price assumptions. Although these early attempts to assess financing strategies by using student price response were criticized [for example, 4, 18], it was not possible to construct an alternative means for estimating the effects of other financing strategies, because the extant price-response coefficients were developed for a single price. …

Tuition Subsidies in a Model of Economic Growth

This paper examines a two-sector aggregative growth model with human capital and educated unemployment. In the model, a tuition subsidy may lead to a long-run decline in the educated fraction of the population, because it may decrease the long-run per capita stock of physical capital in the economy, tending to reduce the output of the education sector and the incentives for workers to enroll in school. Thus, cuts in education subsidies undertaken by countries in Africa for adjustment reasons may actually lead to long-run increases in the educational attainment of their populations.

Tuition Subsidies in a Model of Economic Growth

This paper examines a two-sector aggregative growth model with human capital and educated unemployment. In the model, a tuition subsidy may lead to a long-run decline in the educated fraction of the population, because it may decrease the long-run per capita stock of physical capital in the economy, tending to reduce the output of the education sector and the incentives for workers to enroll in school. Thus, cuts in education subsidies undertaken by countries in Africa for adjustment reasons may actually lead to long-run increases in the educational attainment of their populations.

Why We Still Need Public Schools: Church/State Relations and Visions Of Democracy

Two cornerstones of American democracy - separation of church and state, and public schools - are under increasing attack. As this collection of essays, written by some of America's leading educators, political figures, and advocates of religious liberty shows, universal public education and the separation of church and state are related. The eminent contributors to this book argue that we need to defend both institutions against increasing onslaughts by the Religious Right and other self-proclaimed arbiters of societal behavior, who seek to dictate public policy and who are labeling the public schools themselves as immoral institutions. At issue here is not whether public schools need to be improved. It is assumed that improvement is necessary. Part One of this volume testifies to the need for separation of church and state, explores the intent of our nation's founders on the subject, and deals with issues of separation within education. Several historical examples are given of battles between the upholders of strict separation and those who would ignore this constitutionally mandated principle. Part Two discusses the dangers of heeding the current call - under the banner of school choice - to ingore the principle of separation by allowing public tuition subsidies of private schools, the great majority of which are parochial. This drive to underwrite school tuition via vouchers, tax credits, or tuition tax deductions would create not only a dangerous entanglement of government with religion but could lead to the eventual demise of America's public schools. Contributors to this important collection are Robert Alley, Ann Bastian, Charles Bergstrom, Robert Bullough, Michael Casserly, Edd Doerr, Arnold Fege, Florence Fast, Donald Frey, Colin Greer, Herbert Grover, T. Jeremy Gunn, Bill Honig, Shirley McBay, Al Menendez, Michael Oleska, Sam Rabinove, William Rioux, William Schulz, Eugenie Scott, August Steinhilber, John Swomley, Oliver Thomas, Julie Underwood, and James Wood.

Parental Schooling Choice: A Case Study of Minnesota

Public support of nonpublic elementary and secondary education has become one of the most controversial issues in American educational policy, with tuition tax credits and deductions subjects of ongoing debate at both the state and federal level. This article presents the results of one of the first empirical investigations of how a tax subsidy for tuition costs actually influences parents' school choices using data from Minnesota, the first state to have a tuition subsidy pass judicial review at all levels. It should be uyseful to policy makers, researchers, adn practitioners who are concerned with how parents make schooling decisions on behalf of their children, and how tax subsidies for educational expenses might affect those choices.

Subsidizing the affluent: The case of medical education

State and federal funds are important sources of revenue for medical schools, and a strong case can be made for public support for these institutions. Although the federal role is more widely known, the states in fact provide the bulk of direct support for medical training. The nature of aid from the two sources differs in significant ways. Most federal aid supports research or patient care, but much of state aid goes to support unconditional tuition subsidies. The primary beneficiaries of these subsidies are relatively affluent nonminority students who are beginning lucrative careers in the medical field--careers that would be lucrative even if no subsidies were provided. Nor does it appear that general subsidies are needed to attract poor and minority applicants. While targeted loans and scholarships to individuals may be justified, general tuition subsidies are not.

Economics of Medical Education

To the Editor.— Despite his earnestly presented COMMENTARY (240:831, 1978), Dr Alexis' concern about minority enrollment in medical schools is more likely to be frustrated by the rising cost of medical education than by direct effects of the Bakke decision. Today, even medical students from financially comfortable families require tuition loans and subsidies, while the schools themselves vie for increasing federal dollars. Tomorrow, the new graduate physician will be the indentured servant of his government, while his school will struggle against progressive bureaucratic control. Despite our zeitgeist on minority needs, the economics of the situation will strike hardest at the least financially favored student during the ensuing clash of social and academic needs.

A Further Look at the Hansen-Weisbrod-Pechman Debate

An intergenerational model of the income distribution, including educational effects, is presented. It is used to analyze issues in the debate over equity effects of subsidies for higher education. In particular, the analysis supports Pechman's view that conventional net benefit calculations are poor indicators of such equity effects. In this Journal [4, 7, 8, 9, 11, 13, 14] and elsewhere [16, references there], Hansen and Weisbrod, Pechman, and others have debated the equity effects of subsidized tuition for higher education. At the heart of the debate are net benefit calculations presented by Hansen and Weisbrod [7]. Pechman's critical view of these calculations may be summarized in his own words [16, p. S256]: The traditional way of looking at the burdens and benefits of higher education is to distribute the net benefits received by students by the income classes of parents (taxpayers). This sweeps the problem created by the intergenerational nature of the benefit transfer under the rug. It seems to me that a more useful way of looking at the problem is to acknowledge that the benefits of public higher education are received by one generation while the costs are paid by another and that there is no way of merging the benefits and costs in one distribution to evaluate the equity of the system. If such net benefit calculations do not measure the equity effects of subsidized tuition, what calculations do? Intuitively, the issue involves comparison of two societies identical in all respects except that one subsidizes higher education more generously. As time passes, will a difference in distributional The author is Professor of Economics, University of California, San Diego. * Richard Attiyeh and two anonymous referees provided most helpful comments. This research was supported by NSF grant SOC74-15238. [Manuscript received May 1975; accepted June 1976.] The Journal of Human Resources * XII * 2 This content downloaded from 157.55.39.207 on Thu, 20 Oct 2016 04:05:27 UTC All use subject to http://about.jstor.org/terms 148 1 THE JOURNAL OF HUMAN RESOURCES equality develop between the societies, and in which direction? Analytically, a natural approach to this question is to construct a complete intergenerational model of the size distribution of income, including higher education variables and tuition subsidy parameters; then to derive income distribution indicators and analyze the sensitivities of the indicators to changes in the subsidy parameters, and, in particular, to see whether distributional inequality increases or decreases with an increase in the rate of subsidization. Sections I and II present an appropriate intergenerational model. In principle, a sufficiently elaborated version of the model, fit to appropriate data, might yield a respectable estimate of the equity effects of higher educational subsidies. However, the appropriate data are not available, and the needed elaborations of the model would be major projects in themselves. Therefore, this paper sets two more modest goals. The first is to propose a promising approach for analyzing the subsidization issue. The second is to use the model in sorting out the logic of the net benefit calculations referred to in the Pechman quotation. Sections III and IV concern the second goal. The model will yield a measure-call it the equity measure-of the sensitivity of income inequality to the level of higher educational subsidy. The equity measure will represent what we would like to know, but cannot estimate directly due to lack of data. The model will also yield a net benefit measure of the sort referred to in the Pechman quotation. The net benefit measure will represent what we can directly estimate from available data (as Hansen and Weisbrod [7] have done). The Hansen-Weisbrod-Pechman debate will be interpreted as a debate over the following proposal: that the net benefit measure be used as a proxy for the equity measure. Hansen and Weisbrod might be identified with the affirmative, Pechman with the negative. It turns out in the model that the equity measure is not well proxied by the net benefit measure, thus favoring Pechman's side. Of course, it should be emphasized that the true debate (as opposed to my characterization of it) is about equity and net benefits in real life, not in a highly simplified model. However, if the logical connection between equity and net benefits does not hold up in a simple economy, it seems improbable that it will hold up in a complicated one.