Test-Optional Admissions and Student Debt

Adopting a test-optional admissions policy alters admissions, enrollment and, potentially, pricing by four-year colleges. With less academic information about applicants and test-optional market segmentation, those admitted under a test-optional policy may face higher prices and accumulate more debt. Combining student debt data from The Institute for College Access & Success from 2000 and 2003-2015 with test-optional admissions data from the National Center for Fair and Open Testing for 2000-2015 in a two-way fixed effects estimator with institution-specific trends and controls, we find that private college graduates admitted under a test-optional policy borrow $1,022 (2016$), or 4.1 %, more than those required to submit their scores. Using the Callaway and Sant'Anna (Journal of Econometrics, 225(2), 200–230, 2021) estimator with multiple time-period treatments, debt is 4.1 % to 8.3 % higher. The evidence suggests that this larger debt is not a result of pricing power through market segmentation, but by selective institutions using price as an additional screening process in response to less information about applicants. Applicants and their families must weigh the ease of applying test-optional against the higher net price and, potentially, larger debt associated with attending test-optional institutions.