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Does the Format of a Financial Aid Program Matter? The Effect of State In-Kind Tuition Subsidies

  • Bridget Terry Long

Does the format of a financial aid program influence how it affects college decisions? This paper examines this question by focusing on state appropriations to public postsecondary institutions. While these funds subsidize tuition costs for in-state students, the in-kind format of the aid an resulting price gap between public and private colleges could also affect choices between colleges. The paper analyzes this possible effect utilizing a conditional logistic choice model, which exploits extensive match-specific information between individuals and nearly 2,700 colleges. Using estimates of how price, quality, and distance influence college decisions, I examine the impact of several dissimilar state subsidy regimes and simulate how decisions would change if the aid were awarded in other ways. The results suggest that the level and distribution pattern of state subsidies strongly influence decisions. When in-kind subsidies are large, students appear to choose public colleges even if the gap in resources between public and private options is substantial. If the aid were instead distributed as a credit applicable to any in-state college, up to 29 percent more students would prefer to attend private four-year colleges. The results also suggest that the in-kind subsidies create incentives for students to favor public four-year colleges over two-year institutions.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 9720.

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Date of creation: May 2003
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Publication status: published as Bridget Terry Long, 2004. "Does the Format of a Financial Aid Program Matter? The Effect of State In-Kind Tuition Subsidies," The Review of Economics and Statistics, MIT Press, vol. 86(3), pages 767-782, August.
Handle: RePEc:nbr:nberwo:9720
Note: ED PE
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  1. Allen, Robert F. & Shen, Jianshou, 1999. "Some new evidence of the character of competition among higher education institutions," Economics of Education Review, Elsevier, vol. 18(4), pages 465-470, October.
  2. Daniel McFadden, 1977. "Quantitative Methods for Analyzing Travel Behaviour of Individuals: Some Recent Developments," Cowles Foundation Discussion Papers 474, Cowles Foundation for Research in Economics, Yale University.
  3. Thomas J. Kane, 1995. "Rising Public College Tuition and College Entry: How Well Do Public Subsidies Promote Access to College?," NBER Working Papers 5164, National Bureau of Economic Research, Inc.
  4. Pechman, Joseph A, 1972. "Note on the Intergenerational Transfer of Public Higher-Education Benefits," Journal of Political Economy, University of Chicago Press, vol. 80(3), pages S256-59, Part II, .
  5. Johnson, George E, 1984. "Subsidies for Higher Education," Journal of Labor Economics, University of Chicago Press, vol. 2(3), pages 303-18, July.
  6. Caroline M. Hoxby & Bridget Terry, 1999. "Explaining Rising Income and wage Inequality Among the College Educated," NBER Working Papers 6873, National Bureau of Economic Research, Inc.
  7. Terry Long, B.Bridget, 2004. "How have college decisions changed over time? An application of the conditional logistic choice model," Journal of Econometrics, Elsevier, vol. 121(1-2), pages 271-296.
  8. John M. Quigley & Daniel L. Rubinfeld, 1993. "Public Choices in Public Higher Education," NBER Chapters, in: Studies of Supply and Demand in Higher Education, pages 243-284 National Bureau of Economic Research, Inc.
  9. Sonstelie, Jon, 1982. "The Welfare Cost of Free Public Schools," Journal of Political Economy, University of Chicago Press, vol. 90(4), pages 794-808, August.
  10. Peltzman, Sam, 1973. "The Effect of Government Subsidies-in-Kind on Private Expenditures: The Case of Higher Education," Journal of Political Economy, University of Chicago Press, vol. 81(1), pages 1-27, Jan.-Feb..
  11. Ganderton, Philip T., 1992. "The effect of subsidies in kind on the choice of a college," Journal of Public Economics, Elsevier, vol. 48(3), pages 269-292, August.
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