Essays on the Higher Education Market and Financial Aid Policies

The purpose of the dissertation is to study the role of market structure and education policy on the efficiency and distribution outcomes in the U.S. college market. Through economic modeling and empirical analysis, I aim to assess the effectiveness of existing and potential education policies in enhancing human capital while ensuring equity in access to high-quality education. The dissertation consists of two chapters. In the first chapter, I study the effects of college market power and Federal financial subsidy on the market equilibrium outcomes and the distribution of economic surplus, using a structural model that incorporates heterogeneous students\u27 demand for college and supply-side endogenous pricing decisions. The model is estimated using student-level data and used to conduct counterfactual analysis, where I disentangle the effects of market power and subsidy on student enrollment and welfare. I argue that accounting for the supply-side responses and market power is critical in correctly assessing the efficiency implications of the education policy as well as understanding how different market players benefit from the policy. The second chapter discusses the equilibrium effects of a State Promise Program, which provides guaranteed tuition coverage for state residents attending Public 2-year institutions. I exploit the timing of the policy change in Tennessee and derive reduced-form estimates of the policy effects. Then I combine results from the reduced-form causal analysis and structural modeling to measure the policy take-up costs and examine the model performance. Through counterfactual simulations, I find that the policy effectively increases student enrollment. However, the Program is found to be regressive and may be subject to efficiency loss due to high policy take-up costs. The results call for policy instruments to ensure equity and efficiency in the design of free college policies proposed nationwide