The Role of State and Local Budget Cuts in the Run-Up of For-Profit Attendance and Student Borrowing: Spillovers between the Public and For-Profit Sectors

Abstract

Between 2000 and 2010, U.S. public postsecondary schools experienced widespread decreases in appropriations funding. We document that every 10 percent cut in appropriations statewide increased for-profit attendance by 2 percent, owing to students who otherwise would have attended public institutions. We hypothesize that public institutions price adjusted in response to funding cuts which, together with a shift in attendance toward a higher-borrowing sector, induced greater reliance on debt financing among students. We estimate a corresponding increase in annual borrowing of 0.7 percent, driven by for-profit borrowers. Finally, we detect meaningful changes in public universities’ tuition, faculty, and competitive admissions slots.