The Role of State and Local Budget Cuts in the Run-Up of For-Profit Attendance and Student Borrowing: Spillovers between the Public and For-Profit Sectors

44 Pages Posted: 18 Sep 2015 Last revised: 22 Sep 2015

See all articles by Sarena Goodman

Sarena Goodman

Board of Governors of the Federal Reserve System

Alice Henriques Volz

Board of Governors of the Federal Reserve System

Date Written: September 17, 2015

Abstract

Between 2000 and 2010, U.S. public postsecondary schools experienced widespread decreases in appropriations funding. We document that every 10 percent cut in appropriations statewide increased for-profit attendance by 2 percent, owing to students who otherwise would have attended public institutions. We hypothesize that public institutions price adjusted in response to funding cuts which, together with a shift in attendance toward a higher-borrowing sector, induced greater reliance on debt financing among students. We estimate a corresponding increase in annual borrowing of 0.7 percent, driven by for-profit borrowers. Finally, we detect meaningful changes in public universities’ tuition, faculty, and competitive admissions slots.

Keywords: higher education, public colleges, enrollment, borrowing, for-profit colleges, state and local appropriations

JEL Classification: H44, H75, I21, I22, J24

Suggested Citation

Goodman, Sarena and Henriques Volz, Alice, The Role of State and Local Budget Cuts in the Run-Up of For-Profit Attendance and Student Borrowing: Spillovers between the Public and For-Profit Sectors (September 17, 2015). Available at SSRN: https://ssrn.com/abstract=2662217 or http://dx.doi.org/10.2139/ssrn.2662217

Sarena Goodman

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Alice Henriques Volz (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

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