Working Paper: NBER ID: w30404
Authors: George Bulman
Abstract: This paper examines how private college and university endowments affect financial aid, admissions selectivity, and the economic and racial composition of incoming students. Because endowment levels are a function of expenditures and alumni giving, which are endogenous to the outcomes of interest, the design exploits changes in endowments stemming from variation in investment returns over time and across peer institutions. Estimates reveal that growing endowments generate large and persistent increases in spending overall and for instruction, student services, and administration in particular. However, wealthier colleges and universities do not increase the number of students they serve or the fraction of students receiving aid, and only modestly increase the generosity of aid packages. Instead, these institutions offset higher freshman yield rates by becoming more selective and enrolling fewer low-income students and students of color. Overall, colleges and universities appear to use greater endowment wealth to increase spending and to become more selective, resulting in higher institutional rankings, but do not increase the size or diversity of their student bodies. The results are important in light of the preferential tax treatment of endowments and interest in increasing access to elite postsecondary education for underserved populations.
Keywords: college endowments; financial aid; admissions selectivity; student composition
JEL Codes: I22; I23; I24
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| growing endowments (O00) | substantial increases in overall spending (H56) |
| growing endowments (O00) | increase in spending in areas such as instruction, student services, and administration (H52) |
| growing endowments (O00) | lower enrollment rates for low-income students and students of color (I24) |
| growing endowments (O00) | improvements in rankings (A14) |
| growing endowments (O00) | no reduction in tuition prices (A19) |
| growing endowments (O00) | no increase in the fraction of students receiving aid (I22) |
| growing endowments (O00) | decrease in diversity of the student body (I24) |