Why are college tuition and fees rising so fast

Hao Zou, Purdue University

Abstract

The purpose of this thesis is to investigate the causes of the rapidly increasing real tuition and fees on higher education .The research will focus on two sectors of higher education institutions, the "public four-year or above" and the "private non-for-profit four-year or above". Our study is divided in two parts. In the first part, we set up a supply and demand model in order to explain how the tuition and fees are decided. We include expenditure, enrollment, revenues, Baumol's disease, staffing patterns and other dummy variables as the supply variables. On the demand side, we include price competition, quality competition, market competition, customers' income, student aid, student loans and the return for college graduates as the variables. Based on these basic analyses, we set up an OLS regression model to find out how these variables influence the real tuition and fees. In the second part, we look into the coefficients of these variables and compare them with previous literatures and our original hypothesis. We further calculate the elasticity for each variable and try to find out how their changes contribute to the fast increasing real tuition and fees. The results indicate that, for both of the sectors we investigate, Baumol's disease, customers' income and expenditure for institutional aid are three main factors that lead to the rapid increase in real tuition and fees. For "public four- year or above" institutions, the staffing patterns, the decreasing "per full-time-enrollment state and local appropriations" and the increasing expenditure for institutional support also contribute to rapidly increasing real tuition and fees. Finally, we find that the rate of change in real tuition and fees vary significantly in different years. As a result, we recommend that when considering strategies to lower the rate at which tuition and fees increase, attention should be paid not only on the main factors like Baumol's disease. Other factors, like market population basis, have large impact in some years even though its effects may be balanced through in the long term.

Degree

M.S.

Advisors

DeBoer, Purdue University.

Subject Area

Economics|Agricultural economics

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