High Tuition, Financial Aid, and Cross-Subsidization: Do Needy Students Really Benefit?

• Published in: Southern economic journal Vol. 59; no. 1; pp. 66 - 76
• Main Authors: Rose, David C., Sorensen, Robert L.
• Format: Journal Article
• Language: English
• Published: Chapel Hill, N.C., etc Southern Economic Association and the University of North Carolina at Chapel Hill 01.07.1992; Southern Economic Association and the University of North Carolina; Southern Economic Association
• Subjects: College students; Colleges; Colleges & universities; Comparative studies; Cross subsidization; Economic models; Economic theory; Economics; Education policy; Financial aid; Full time students; Higher education; Net prices; Proxy reporting; Regression analysis; Student financial aid; Students; Subsidies; Tuition; Undergraduate students; Universities; United States > US
• ISSN: 0038-4038; 2325-8012
• DOI: 10.2307/1060385

Whether the net price paid by the average needy student is negatively related to the degree in which institutions price-discriminate to, presumably, engage in cross-subsidization, is investigated. It is found that while institutions that appear to inflate their tuition do make larger financial aid awards, their awards are not large enough to reduce the average net price paid by needy students. This finding does not mean that all needy students are made worse off by such policies. Rather, it more likely suggests that to whatever extent such cross-subsidization does occur, it is practiced in a more selective fashion than modeled by the analysis. Perhaps institutions concentrate their efforts on reducing the net price paid by narrowly targeted groups of needy students. If institutions do target their financial aid, however, then the merit of cross-subsidization is difficult to assess. The targeted needy students are obviously made better-off and the additional revenues can be used to pursue any number of worthy institutional goals. On the other hand, the needy students that are not targeted are made worse-off, and there is no guarantee that the additional revenues are spent in a manner that is consistent with the state objectives of the institution.