Price Regulation, Price Discrimination, and Equality of Opportunity in Higher Education: Evidence from Texas

December 2016
Kevin Stange, Rodney Andrews

This paper assesses the importance of price regulation and price discrimination to low-income students' access to opportunities in public higher education. Following a policy change in the state of Texas that shifted tuition-setting authority away from the state legislature to the governing board of each public university, most institutions raised sticker prices and many began charging more for high-return undergraduate majors, such as business and engineering. We use administrative data on Texas public university students from 2000 to 2009 matched to earnings records, financial aid, and new measures of tuition and resources at a program level to assess how deregulation affected the representation of disadvantaged students in high-return institutions and majors in the state. We find that poor students actually shifted towards higher-return programs following deregulation, relative to non-poor students. Deregulation facilitated more price discrimination by increasing grant aid for low-income students and also enabled supply-side enhancements such as more spending per student, which may have partially offset the detrimental effects of higher sticker price. The Texas experience suggests that providing institutions more autonomy over pricing and increasing sticker prices need not diminish the opportunities available to disadvantaged students.

We thank John Thompson and Pieter De Vlieger for exceptional research assistance and seminar participants at Michigan, University of Illinois – Chicago, Cleveland Federal Reserve Bank, the 2015 APPAM Fall Research Conference, the 2016 AEFP Annual Meetings, the 2016 NBER Summer Institute, and the Texas Higher Education Coordinating Board for both helpful feedback and assisting us with various data elements and institutional history. This project is funded in part by grants from the Russell Sage Foundation and the Spencer Foundation. The conclusions of this research do not necessarily reflect the opinions or official position of the Texas Education Agency, the Texas Higher Education Coordinating Board, or the State of Texas. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.