Putting a Price on College: The Effect of Shocks to Net Price on Student Satisfaction, Goals, and Employment

Abstract

The dramatic increase in the cost of higher education since the 1980s has eroded public confidence in American colleges and universities. Although elite private institutions have been able to raise prices due to high consumer willingness to pay, particular features of the education market have made a high-tuition, high-aid model the norm among most colleges. As a result, the advertised “sticker price” has increasingly diverged from the “net price” students pay after receipt of grants and scholarships.

Net price has accordingly replaced tuition as the key independent variable in the economics literature examining the effects of the rising cost of higher education on multiple student outcomes. However, net price is often defined inconsistently. This paper offers a concise and repeatable definition of average net price - based on data provided by the Integrated Postsecondary Education Data System (IPEDS) at the U.S. Department of Education’s National Center for Education Statistics (NCES) - and uses this to study the effect of shock to net price on multiple outcomes.

Several studies have investigated the effect of changes to the net price of college on post-college outcomes (such as earnings and homeownership). Studies considering the effects of changing net price on currently enrolled students have focused on enrollment and persistence. I model the effect of large discrete positive shocks to net price on student satisfaction, goals, and employment using two-way fixed-effects event study models (with binary and continuous treatment). The evidence presented suggests that shocks to the net price of college increase contemporaneous self-reported student satisfaction, a finding that supports theories from behavioral economics stating that high prices are associated with high quality. Supplemental analyzes (including propensity score modeling and an examination of differential responses to net price shocks across income groups) reveal the complex matrix of student and college characteristics that moderate the effect of prices on outcomes. Based on this, I argue for increased granularity in future work on the effects of prices on student outcomes.