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Closing the Gap: The Effect of Reducing Complexity and Uncertainty in College Pricing on the Choices of Low-Income Students

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  • Susan Dynarski
  • CJ Libassi
  • Katherine Michelmore
  • Stephanie Owen

Abstract

High-achieving, low-income students attend selective colleges at far lower rates than upper-income students with similar achievement. Behavioral biases, intensified by complexity and uncertainty in the admissions and aid process, may explain this gap. In a large-scale experiment we test an early commitment of free tuition at a flagship university. The intervention did not increase aid: rather, students were guaranteed before application the same grant aid that they would qualify for in expectation if admitted. The offer substantially increased application (68 percent versus 26 percent) and enrollment rates (27 percent versus 12 percent). The results suggest that uncertainty, present bias, and loss aversion loom large in students' college decisions.

Suggested Citation

  • Susan Dynarski & CJ Libassi & Katherine Michelmore & Stephanie Owen, 2021. "Closing the Gap: The Effect of Reducing Complexity and Uncertainty in College Pricing on the Choices of Low-Income Students," American Economic Review, American Economic Association, vol. 111(6), pages 1721-1756, June.
    • Handle: RePEc:aea:aecrev:v:111:y:2021:i:6:p:1721-56
    DOI: 10.1257/aer.20200451
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    References listed on IDEAS

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    2. Guido W. Imbens & Donald B. Rubin, 1997. "Estimating Outcome Distributions for Compliers in Instrumental Variables Models," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 64(4), pages 555-574.
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    More about this item

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • I22 - Health, Education, and Welfare - - Education - - - Educational Finance; Financial Aid
    • I23 - Health, Education, and Welfare - - Education - - - Higher Education; Research Institutions
    • I24 - Health, Education, and Welfare - - Education - - - Education and Inequality
    • I28 - Health, Education, and Welfare - - Education - - - Government Policy

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