Was Princeton Worth It? A study on the effectiveness of university expenditures in the United States

Abstract

This paper expands upon the educational economics literature on university expenditures and their ties to student outcomes. By analyzing the effect of university expenditure per student on future student earnings and differentiating these results by university types, this paper illuminates trends that can have important implications on funding and expenditure policies. The empirical methods employed include ordinary least squares models, both with and without fixed effects, as well as instrumental variable models such as two stage least squares regressions. Key variables include expenditure per student, variables for private institutions, and different data subsets to account for selectivity. The initial OLS results suggest that higher expenditures per student have a positive correlation with future graduate income, and that private universities and research-based institutions are more effective with their spending than public institutions or top liberal arts colleges. However, when including university fixed effects or instrumental variables, the impact of university expenditures and their effectiveness become insignificant. These findings contribute to the literature on the relationship between type of institution and university expenditure effectiveness, and can help inform students, higher education institutions, and US educational policies.