Accounting for the Rise in College Tuition

Grey Gordon, Aaron Hedlund

Chapter in NBER book Education, Skills, and Technical Change: Implications for Future U.S. GDP Growth (2019), Charles R. Hulten and Valerie A. Ramey, editors (p. 357 - 394)
Conference held October 16-17, 2015
Published in December 2018 by University of Chicago Press
© 2019 by the National Bureau of Economic Research
in NBER Book Series Studies in Income and Wealth

We develop a quantitative model of higher education to test explanations for the steep rise in college tuition between 1987 and 2010. The framework extends the paradigm in Epple, Romano, Sarpca, and Sieg (2013) of imperfectly competitive, quality maximizing colleges and embeds it in an incomplete markets, life-cycle environment. We measure how much changes in the underlying cost structure, reforms to the Federal Student Loan Program (FSLP), and the increase in the college earnings premium have contributed to tuition inflation. In the model, these changes combine to generate a 102% rise in net tuition between 1987 and 2010, which more than accounts for the 92% increase seen in the data. Our findings suggest that expanded student loan borrowing limits are the largest driving force for the increase in tuition, followed by the rise in the college premium.

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This chapter first appeared as NBER working paper w21967, Accounting for the Rise in College Tuition, Grey Gordon, Aaron Hedlund
Commentary on this chapter: Comment, Sandy Baum
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