State appropriations and undergraduate borrowing: more debt, less money

Samuel R. Raisanen, Kathryn F. Birkeland

Research output: Contribution to journalArticlepeer-review

2 Scopus citations

Abstract

ABSTRACT: When state appropriations decrease, public universities respond by raising tuition. Students borrow more in response to both tuition increases and appropriation cuts. This article investigates the feedback of how borrowing and tuition influence state appropriations. Using a panel data set of 450 four-year public universities from 1999 to 2012, we employ three-stage least squares techniques to control for the endogeneity between state appropriations, tuition and student borrowing. There is evidence that state policy-makers respond to increases in university tuition and student borrowing by decreasing future appropriation levels. After controlling for the effect of appropriations on tuition and borrowing, a one-dollar increase in student borrowing reduces state appropriations per student by $0.06, and a one-dollar increase in tuition results in a decrease of $0.45 in state appropriations per student. When universities increase tuition for reasons other than a reduction in state appropriations, policy-makers respond with a significant cut in future appropriations which could signal an incentive strategy.

Original languageEnglish
Pages (from-to)566-570
Number of pages5
JournalApplied Economics Letters
Volume23
Issue number8
DOIs
StatePublished - May 23 2016

Keywords

  • Higher education
  • public universities
  • state appropriations
  • student debt
  • tuition

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