The Impact of Price Caps and Spending Cuts on U.S. Postsecondary Attainment

Higher Education, New Findings, August 2017

Increasing the post­sec­ondary attain­ment rate of college-age youth is an impor­tant eco­nomic pri­or­ity in the U.S. and in other devel­oped coun­tries. Yet lit­tle is known about whether dif­fer­ent forms of pub­lic sub­sidy can increase degree com­ple­tion. In this paper, we com­pare the impact of the mar­ginal tax­payer dol­lar on post­sec­ondary attain­ment when it is spent on low­er­ing tuition prices ver­sus increas­ing the qual­ity of the col­lege expe­ri­ence. We do so by esti­mat­ing the causal impact of changes in tuition and spend­ing on enroll­ment and degree com­ple­tion in U.S. pub­lic post­sec­ondary insti­tu­tions between 1990 and 2013. We esti­mate these impacts using a newly assem­bled data set of leg­isla­tive tuition caps and freezes, com­bined with vari­a­tion in expo­sure to state bud­get shocks that is dri­ven by dif­fer­ences in his­tor­i­cal reliance on state appro­pri­a­tions. We find large impacts of spend­ing on enroll­ment and degree com­ple­tion. In con­trast, we find no impact of price changes. Our esti­mates sug­gest that spend­ing increases are more effec­tive per dol­lar than price cuts as a means of increas­ing post­sec­ondary attainment.