Panel Paper: College Choice: Tradeoff Between Institutional Price and Quality

Thursday, November 8, 2012 : 3:00 PM
Carroll (Sheraton Baltimore City Center Hotel)

*Names in bold indicate Presenter

Matea Pender, The College Board

Students typically choose from among a variety of postsecondary institutions that differ by price and selectivity.  While there are many reasons why a student may choose a particular institution, college price is one of the most salient factors.  In addition, researchers have shown that college tuition is positively related to college selectivity, which is, in turn, positively related to graduation rates (Bowen et al. 2009).  Thus, when making their college choice, students’ sensitivity about price has implications for their likelihood of completing a college degree, a tradeoff that is not often explicitly clarified at either the application or enrollment stages of student decision-making.

In this paper, I analyze students’ tradeoffs between institutional price and graduation probabilities at different college selectivity levels.  Using Barron’s Admissions Competitiveness Index, I aggregate postsecondary institutions into four different selectivity levels: very selective, selective, somewhat selective, and nonselective. Furthermore, I utilize college sticker prices and average net-of-financial aid prices at public and private four-year institutions from IPEDS to determine predicted net price by college selectivity.  Institutional data show that tuition is positively related to college selectivity, but in a non-linear fashion, potentially complicating the way in which students can quickly and easily evaluate the tradeoffs they face. 

While students may enjoy lower tuition at less selective schools, they are also faced with lower graduation rates.  To avoid biases inherent in IPEDS graduation rate data, I use the 2004 cohort of SAT takers who enrolled in college to calculate six year graduation rates within the four college selectivity categories.  Unlike the non-linearities in tuition data, the increase in graduation rates accompanying more selective colleges moves in a more linear fashion.  The aggregate statistics indicate that students choosing between the bottom two selectivity levels may greatly benefit from enrolling in a more selective college, even more so than the choice between the more selective colleges.  For example, students qualified to attend very selective schools who instead choose to attend selective institutions can save, on average, about $4,000 in annual tuition, but this “costs” a 6 percentage point decrease in graduation rates.  In comparison, choosing a nonselective over a somewhat selective institution saves an average of only $350, but is associated with a 10 percentage point decrease in graduation rates.

These findings are important given that in 2004 more than a third of high school graduates nationwide selected postsecondary alternative below what their academic credentials permitted them access to; these students academically undermatched.  This is particularly troublesome given that undermatched students are more likely to be low-income, first-generation college goers and concentrated in rural areas (Dillon & Smith, 2009; Smith, Pender, & Howell 2012).  When student and university budgets are stretched thin, a clear understanding of the predicted tradeoffs between net price and outcomes should improve academic match and, thereby, students’ collegiate outcomes.

Full Paper: