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Economics 101: Colleges and Current Economic Realities Sandy Baum March 2009

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

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Economics 101: Colleges and Current Economic Realities Sandy Baum March 2009

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  1. Economics 101: Colleges and Current Economic RealitiesSandy Baum March 2009

  2. The Economy and Higher Education • Recession • Credit crunch • Background on prices and aid • Basic economic concepts

  3. Why Economics? • Understanding the context of student aid • Analytical approach to prices and student aid • Supply, demand, incentives • Equity, efficiency

  4. Changing Policies • The stimulus package • More Pell funding • Institutional funding • The Obama budget • Pell • Student Loans • Tax Credits • Simplification?

  5. The Credit Crunch • Availability of student loans • Parent financing options • Institutional financing options

  6. 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.

  7. Where is your institution or system on the supply curve?

  8. Examples of Supply Shifters • Higher input prices • Technical change • Lower government appropriations (publics) • Lower endowment (privates)

  9. Demand and College Affordability Demand shifts out • when incomes increase • when preferences change • when the value of higher education changes

  10. How price sensitive is your applicant pool?

  11. Family Circumstances • Income • Savings • Uncertainty

  12. 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.

  13. How price sensitive is your applicant pool?

  14. Labor Market Changes and Demand for College • Reduced ability to pay • Reduced opportunity cost of student time

  15. Marginal Costs and Benefits • Marginal vs. total • Diamonds and water • Do we need more technology? • Marginal vs. average • Should we enroll additional students?

  16. 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

  17. Financial Aid: Price Discrimination Tuition Price fullprice D Quantity full-pay students total students students on aid

  18. 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

  19. Finding Solutions • Short-term measures • Long-term strategies

  20. Sandy Baumsbaum@collegeboard.orgA Primer on Economics for Financial Aid Professionalshttp://www.collegeboard.com/prod_downloads/highered/fa/Economics-Primer-2004.pdf

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