Student Responses to the Changing Cost of Post-Secondary Education

At a time when many public institutions are raising tuition rates in order to make up for decreasing state funding it is particularly important to understand how tuition rates affect the education and labor market decisions of students. The existing literature dealing with the cost of education focuses primarily on two outcome variables: school enrollment numbers and time to graduation. While these outcomes are undoubtedly useful for university administrators, this focus provides an incomplete picture of how students adapt to changes in the cost of education. Using state variation in tuition and financial aid this study examines a wider variety of student responses and develops a simple model to illustrate tradeoffs between formal human capital accumulation and labor market participation. My empirical analysis, however, does provides only limited evidence that post-secondary education costs affect student labor force participation. This lack of empirical evidence may result from one of several data limitations, including small sample size, low levels of average variation in the cost of post-secondary education, and a weak correlation between average public tuition and state financial aid expenditures and the actual costs facing individual students. Despite these limitations, my findings indicate that increases in the availability of need-based financial aid is positively correlated with full-time enrollment in both 2-year as well as private institutions, and that increases in tuition are negatively correlated with full-time enrollment.