Panel Paper: Competition and Crowd-out: Evidence from Local Higher Education Markets

Saturday, November 8, 2014 : 11:15 AM
Dona Ana (Convention Center)

*Names in bold indicate Presenter

Lesley Turner, University of Maryland, Stephanie Cellini, George Washington University and Rajeev Darolia, University of Missouri
Do public and for-profit institutions compete for students? How does federal student aid policy affect the distribution of students across these sectors? These are critical questions for education policy considering the large federal investment in higher education and the complex relationship between enrollment, financial resources, and college choices. In this paper, we address these questions by examining how the availability of for-profit institutions and financial aid affects the enrollment of low-income students and the distribution of students across public, nonprofit, and for-profit schools. We identify these effects using plausibly exogenous variation in the composition of institutions in a local market driven by federal regulations such as cohort default rates and other federal rules. Nationwide, the share of Pell Grant recipients attending for-profit institutions peaked at 27 percent in 1988 and then fell over the next decade to a low of 13 percent in 1998. Enrollment in public institutions follows the same pattern in reverse, while the size of the total Pell Grant population continued to increase, suggesting that as many for-profit institutions lost eligibility to disburse federal student aid due to high student loan default rates in the 1980s and 1990s, students that would have enrolled in these institutions attended public schools instead.