Do Institutions Respond Asymmetrically to Changes in State Need- and Merit-Based Aid?

A study presented at November’s conference in Indianapolis raised some eyebrows over this finding: When states increase need-based financial aid to public institutions of higher education, the schools respond by raising tuition.

The study showed merit-based financial aid led to public colleges lowering their prices, evidence of competition to attract the highest-performing students to their schools, but when the state aid was intended for low-income students, the school would take the money and respond by cranking up the overall tuition, potentially leading to pricing out the needy students for whom the aid was intended.

The actual paper is quite technical, so co-author Bradley Curs, an assistant professor at the University of Missouri’s Department of Education, Leadership and Policy Analysis, answered a few basic questions to clarify his findings:

Youth Today: Could you start by explaining what you were hoping to accomplish with this report?

Bradley Curs: This research really came out of discussions I had with my co-author [Luciana Dar, an assistant professor at the University of California, Riverside] regarding an interplay with state higher education finance policy and how institutions respond, and this idea of trying to understand whether public higher education institutions work with or against their states. Oftentimes they’re creating policies in their own interest, so we wanted to see how institutions are responding and whether they’re changing their own strategies and response.

YT: Using the most layman terms possible, describe your methodology.

Curs: It’s a statistical analysis that tries to understand if states increase their financial aid, how do institutions change their net price. We look at tuition and institutional aid. We’re using an advanced statistical technique to try to understand which direction that applies. And we’re trying to isolate the effect of states changing their financial aid on institutional pricing behaviors. So we collected data; we used national data that the federal government collects on all institutions in the United States. Then we’re able to look at the statistical technique – the crunching of the numbers – to try to isolate that effect.

YT: And what was your hypothesis?

Curs: Previous research had been very mixed in its findings on similar research questions. And so I think really going in, we sort of were agnostic on that approach of not knowing which direction we were expecting to find. I think we had inklings that institutions would lower their price in response to merit aid, but with the need-based one, we were a little bit surprised to see they increased their response.

YT: So your results show that merit-based state aid leads to competition for the best and the brightest students among schools, which leads to reduced net tuition. While not necessarily surprising, is it discouraging to see this same competition doesn’t appear to be happening to attract students in need?

Curs: Yes, I would say it can be kind of discouraging to think about. I would say it’s the needy students for which net price is more of an issue to them. The students who would receive the merit-aid awards are most likely to be receiving pretty strong awards from other institutions, as well as having the resources to attend these institutions anyway, whereas, the students most likely to receive need-based aid are the ones who need a net price to be lowered. Need-based aid students are typically choosing whether to go to college or not [as opposed to merit-based aid recipients choosing which college to attend].

YT: One particular sentence jumped out when we read the report: “The findings would indicate that public institutions may attempt to capture the increased generosity of state financial aid policy by increasing their own net price, thus, minimizing the ability of state financial aid policy to increase access for low-income students.” The word “capture” is somewhat loaded here. Am I reading too much into this sentence, or are you suggesting this is an intentional effort on the part of public universities to endear themselves to the public through perceived generosity, while in reality pricing out low-income students from attending their schools?

Curs: I would say yes, the word “captured” does come off as sort of nefarious, but we’re not able to get at the intention of the public institutions, so what we’re observing is that they have raised tuition, but we’re not in the position to say why they have done that. It may have been a coordinated state effort. But we don’t have the ability to accurately say why this is happening. It’s more that we’re making the observation that it appears to be happening.

YT: Any chance of further research that could answer that “why” question?

Curs: Through alternative research designs, such as qualitative research or interviews, I think it could be studied. But I think it would be very difficult to find research subjects who would indicate they were raising tuition in response to states being more generous. I’m not sure a researcher could ever get a subject to indicate that that is the story. Tuition settings are a very difficult and complicated process. Despite our findings, we’re never going to be able to draw methods to say why. It could be due to other factors within the world that we’re not able to accurately control for or adjust for.

YT: Your report looks at numbers, so I understand you can’t capture evidence of true intentions on the part of universities, but do you believe the powers that be at colleges who determine tuition rates are making conscious decisions here, or could they merely be crunching numbers into a computer which gives them the most beneficial results to balance the budget?

Curs: In my opinion, I don’t think that the story that we have found would be one of the primary aspects of how they are setting their tuition policy. I think they may think about the purchasing power of the students within their state. I don’t think it’s them trying to capture it from low-income students. I think they do take into account purchasing power, but I don’t think they’re necessarily taking into account, “Oh, we could take this from them.” I don’t think they necessarily think of it from a negative perspective as we would interpret it, but I think they do take into account the general state situation when determining their own strategies.

On a final note

Curs pointed out this is not the final version of the paper and said a more complete edition would be released later, based on observations from others and questions he received when he presented the paper at the Association for the Study of Higher Education conference. For the record, the question most asked at the conference, Curs said, was, “ ‘Can you say why this would be happening?’ That’s sort of the next step moving the research.”

Free. 23 pages.


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