Transcript Colleges and Current Economics Realities

Economics 101:
Colleges and Current
Economic Realities
Sandy Baum
March 2009
The Economy and Higher
Education
• Recession
• Credit crunch
• Background on prices and aid
• Basic economic concepts
Why Economics?
• Understanding the context of student
aid
• Analytical approach to prices and
student aid
• Supply, demand, incentives
• Equity, efficiency
Changing Policies
• The stimulus package
•
More Pell funding
•
Institutional funding
• The Obama budget
•
Pell
•
Student Loans
•
Tax Credits
•
Simplification?
The Credit Crunch
• Availability of student loans
• Parent financing options
• Institutional financing options
Supply
• Affordability / access conversation has to combine supply and
demand.
• Relationship between price and quantity
• Holding constant costs of production
• As price increases, quantity supplied increases
• Supply is more price-sensitive in the long-run.
Where is your institution or
system on the supply
curve?
Supply
120
100
Price
80
60
40
20
0
1
2
3
4
5
Number of Students
6
7
Examples of Supply Shifters
• Higher input prices
• Technical change
• Lower government appropriations (publics)
• Lower endowment (privates)
Demand and College Affordability
Demand shifts out
•
when incomes increase
•
when preferences change
•
when the value of higher education
changes
How price sensitive is your
applicant pool?
Demand
2
2
1.5
1.5
Price
Price
Demand
1
0.5
1
0.5
0
0
1
2
3
4
5
Number of Students
6
7
1
2
Number of Students
3
Family Circumstances
• Income
• Savings
• Uncertainty
Percentage Growth in Mean Family Income by Quintile
(in Constant 2007 Dollars),
1977–1987, 1987–1997, and 1997–2007
Source: U.S. Census Bureau, Current Population Survey, Table F-1, Table F-3, and FINC-01;
calculations by the authors, where available.
How price sensitive is your
applicant pool?
Demand
2
2
1.5
1.5
Price
Price
Demand
1
0.5
1
0.5
0
0
1
2
3
4
5
Number of Students
6
7
1
2
Number of Students
3
Labor Market Changes and Demand
for College
• Reduced ability to pay
• Reduced opportunity cost of student time
Marginal Costs and Benefits
• Marginal vs. total
• Diamonds and water
• Do we need more technology?
• Marginal vs. average
• Should we enroll additional students?
Institutional Aid
• Institutional aid is a form of price discrimination
• Price discrimination may increase number of
students enrolled at individual school
• Impact on total revenue
• Need-based aid discriminates based on ability to
pay
• Other forms of aid discriminate on willingness to
pay
Financial Aid: Price Discrimination
Tuition Price
full price
D
full-pay students
total students
students on aid
Quantity
Need-based vs. Non-need-based Aid
• Price sensitivity
• Horizontal and vertical equity
• Short-term vs. long-term
• Foundations for need analysis: income,
assets, snapshot view
Finding Solutions
• Short-term measures
• Long-term strategies
Sandy Baum
[email protected]
A Primer on Economics for Financial
Aid Professionals
http://www.collegeboard.com/prod_downloads/highe
red/fa/Economics-Primer-2004.pdf