Author(s)  
Ian Fillmore

In the United States, the federal government grants colleges access to a student's Free Application for Federal Student Aid (FAFSA) which facilitates substantial price discrimination. This paper is the first to estimate the consequences of allowing colleges to use the FAFSA in their pricing decisions. I build and estimate a structural model of college pricing and simulate counterfactuals wherein some or all of the FAFSA information is restricted. I find that if FAFSA information were restricted, 13 percent of students attending elite colleges would be inefficiently priced out of the elite market. Nevertheless, student welfare would rise as colleges charged the majority of students lower prices. Colleges do use the FAFSA to transfer resources from high- to low-income students on average, but this redistribution is highly imprecise: allowing colleges to use the FAFSA harms one-third of low-income students while one in seven high-income students actually benefit.

Publication Type  
Working Paper
File Description  
First version, June 2021
JEL Codes  
I20: Education and Research Institutions: General
L11: Production, Pricing, and Market Structure; Size Distribution of Firms
Keywords  
price discrimination
higher education
first-price auction
Bayes-Nash equilibrium
financial aid
Free Application for Federal Student Aid
FAFSA