The Effect of State-funded Scholarship Programs on the Price of Higher Education

The price of higher education in the United States has increased in excess of the inflation rate since the 1970s. Decreased affordability and access to higher education can incur detrimental impacts on an individual\u27s future and the future of the American labor market, in addition to widening income disparity. Numerous integrative factors contribute to the trend in soaring prices. Of the many factors pushing prices higher, one controversial hypothesis is that increasing amounts of governmental aid to students have contributed to higher prices. This study tests that hypothesis. The Bennett Hypothesis posits that universities have raised their prices in response to increased governmental aid, as the government acts as a third-party payer. Long (2004) suggests a model in which colleges aim to maximize revenue subject to downward pressure due to students\u27 budget constraints and competition from other colleges. To increase affordability and keep bright students in their home states, a select number of Southern states have implemented state-funded scholarship programs. The programs provide full or partial scholarships to in-state universities for high school seniors graduating with a certain GPA. These scholarship states provide a natural experiment, allowing this study to follow Long, using regression analysis to construct a difference-in-differences model. This project uses a different state, a different time period, and a slightly different model in order to examine whether Long’s results hold. The change in tuition and fees, and room and board for public and private four-year institutions in the scholarship state will be compared to the change in nonscholarship states