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Differential Pricing in Undergraduate Education: Effects on Degree Production by Field

Issue/Topic: Postsecondary Affordability--Tuition/Fees
Author(s): Stange, Kevin
Organization(s): University of Michigan
Publication: National Bureau of Economic Research
Season: Summer 2013

Background:
With state support to higher education declining, many universities have introduced differential tuition as an alternative to across-the-board tuition increases. The efficacy of many of these efforts depends on the response of students and institutions to changes in major-specific pricing, a topic about which little is known. This study evaluates the effect of these policies on degree completion.

Purpose:
To study the efficacy of differential tuition pricing; to estimate the effects of such policies on degree production; to examine potential student reactions to differential pricing based on gender, income, and race/ethnicity.

Findings/Results:

Engineering was the only major in the sample where the effect of differential tuition pricing was statistically significant. The impact was negative; that is, differential tuition policy decreased the number of degrees produced by institutions.

The share of business degrees decreased and the percent of nursing degrees increased, but these effects were not related to differential tuition pricing.

There is some evidence that differential pricing for engineering students is associated with fewer Pell recipients entering engineering.

There is no evidence that differential pricing leads to reallocation of institutional grant aid across majors.


Policy Implications/Recommendations:

Consistent with the concern of some differential tuition critics, the results indicated that women and students of color are more adversely affected by these policies than males and whites, especially in engineering. With states attempting to increase the number of women and minorities in STEM fields, policymakers should study the relative effect of tuition rates on enrollment in specific majors.

Implementing differentials may indeed impact the majors that students pursue. The research design, however, did not permit the type of precision that would allow for causal comparisons. In fact, students might respond more to other incentives or price signals. This study does not speculate the relative impact of tuition differentials on students' decision of major.

Since differentials may reduce demand for certain majors, these policies may not raise as much revenue as expected. It is important for colleges to understand how the revenue and student impact of differential pricing compares to alternative pricing schemes such as across-the-board tuition increases or higher tuition for wealthier or out-of-state students.


Research Design:
Researcher uses event-study strategy to compare changes in the share of degrees awarded in certain fields to changes at schools that did not alter their tuition policy during the same period.

Population/Participants/Subjects:
18,000 students enrolled in engineering, business, or nursing programs at the 142 research universities in the sample between 1990 and 2010.

Year data is from:
1990 to 2010

Setting:
Multi-State

Data Collection and Analysis:
Data on the mix of degrees awarded by 142 large public research universities from 1990 to 2010. Fifty of these universities adopted differential pricing for engineering, business, or nursing during this time period. Study uses incremental tuition and fees charged at 161 research universities during the 2007-2008 academic year and the IPEDS Degrees and Certificates Conferred Module.

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