Economics and Finance of Higher Education
The higher education sector is a key source of creativity, economic competitiveness, and resiliency of the US economy. It currently enrolls more than 18 million students, about three quarters of them in public institutions. The central role of higher education in a modern economy makes it important to understand both the economics and the financing of the sector. The financial model of higher education has been under stress for decades as costs rise and revenue growth proved elusive, but the challenges have become sharper in the last few years. Cutbacks in federal research funding, along with new taxes on the endowment returns of the wealthiest universities and restrictions on traditionally high-tuition foreign students, have created new financial tensions.
To provide new insights on the financial aspects of the higher education sector, the National Bureau of Economic Research (NBER), with support from the Alfred P. Sloan Foundation, will host a research conference in Cambridge on Friday, October 15, 2027. John Y. Campbell (Harvard University), Kaye Husbands Fealing (Georgia Tech), and James Poterba (MIT) will organize the conference. It will explore the financing of institutions of higher education, recognizing the disparities between the public and private sectors, the wide variations within both sectors and the range of institutions, including for example community colleges, regional public universities, and flagship public universities.
This project will emphasize the revenue sources, expenditure categories, and asset portfolios of colleges and universities, the cost of the evolving set of responsibilities that these institutions are expected to discharge, and the changing size and financial capacity of the potential student population. It seeks to encourage discussion on both long-run financial sustainability and mechanisms for responding to short-run financial stress.
Research topics that are of interest include, but are not limited to:
- How will the gradual decline in the size of domestic cohorts of 18-year-olds affect the financial status of the US higher education sector?
- Will international student demand for undergraduate and post-graduate training in the US make up for declining domestic cohort sizes? How do restrictions on foreign students, at both the undergraduate and graduate levels, affect the financial status of colleges and universities? How are colleges and universities in other nations responding to demographic changes?
- Will new strategies for online learning and for use of AI expand demand for the higher education sector broadly, or will they concentrate demand among a small set of star institutions, or even individual star faculty? How is AI, and the difficulties it raises for measuring student competency and achievement, affecting the market for higher education services and the future demand for in-person, on-campus education? How is AI affecting college and university administration and the costs of this administration more generally?
- How is the current education finance system for elite private institutions, which involves substantial redistribution within the cohort of students, sustainable? Are middle-class families reaching the limits of what they can pay for higher education, and how does the current student loan environment affect affordability and attendance?
- What role might income-contingent loans play in expanding college access? Is debt-financed graduate school sustainable?
- What are the financial, enrollment, and broader policy consequences of the divergence between the sticker prices and net prices charged by elite private institutions?
- How has the role of sponsored research in supporting on-campus research evolved in the last two years and over the last two decades? As funding models shift and private philanthropy replaces government grants in some fields, how will the model for funding faculty and graduate students in STEM fields evolve?
- How would changes to the indirect cost model currently used by federal science funding agencies affect university finances? How would various alternatives affect the incentives to conduct on-campus research?
- How will the expanded endowment tax affect the financial status of the small number of colleges and universities that will need to pay it?
- How have recent changes in state government support for higher education affected colleges and universities? What has changing public support meant, and what will it mean, for flagship research universities relative to community colleges?
- How do colleges and universities choose between owning and leasing facilities such as student dormitories, parking garages, and laboratories? Are capital market innovations lowering the cost of these facilities?
- How do colleges and universities account for depreciation of their capital stock in their financial statements and their long-run planning? Which institutional structures are most effective in setting aside funds for deferred maintenance?
- What are the prospects for consolidation in the higher education sector, for example by mergers of small private liberal arts colleges or consolidation of community colleges into broader networks?
- How do the financial structures at Historically Black Colleges and Universities and Minority Serving Institutions differ from those in other parts of the higher education sector? How resilient are these models?
- How do the investment offices at institutions with generous endowments adapt their asset allocations in response to time-varying expected returns on various asset classes? How does pursuit of the Yale model of diversified risky investing affect the financial risk profile of a university?
- How does private equity compare with leveraged public equity as an asset class for endowment investors? Does imperfect marking to market hide risk and make private equity more attractive to endowment managers? Can capital calls and falling distributions create liquidity problems for universities in downturns?
- How do endowment-dependent institutions adjust to unexpected positive or negative shocks in capital markets? Are there ways to make university budgets more flexible to accommodate these shocks?
The organizers welcome the submission of proposals for research papers, as well as completed papers, that provide new insights on economic and financial aspects of higher education. Papers may analyze policies that are or could be used by government agencies and other data providers, but in keeping with NBER restrictions, they may not make recommendations about the practices these entities should pursue. Submissions from scholars who are in their early careers and with and without NBER affiliations are welcome.
To be considered for inclusion on the program, papers and paper proposals must be uploaded by 11:59pm (EST) on Wednesday, February 17, 2027
Please do not submit papers that will be published by the time of the conference. Papers that are presented at the conference will be eligible for inclusion in an edited conference proceedings volume that will be published by the University of Chicago Press. Authors will receive a modest honorarium for their participation in the project, subject to timely submission of a revised manuscript for the proceedings volume.
The NBER will cover the cost of two authors per paper attending the research conference; all co-authors will be invited. The conference will be live-streamed to expand dissemination of the research findings. Questions about this conference may be addressed to confer@nber.org.