Guaranteed Tuition Policies and State General Appropriations for Higher Education: A Difference-in-Difference Analysis

This study explores the impact of state-level guaranteed tuition laws on state general appropriations for higher education. Using the “Truth-in-Tuition” law that was implemented in Illinois in 2004 as the treatment condition, this study analyzes data from 2000–2012. To test the direction and size of the effect on state general appropriations, this work uses a quasi-experimental, difference-in-difference methodology with a national panel dataset of public four-year institutions. Institutions in Illinois experienced significant decreases in state appropriations following the introduction of the guaranteed tuition law compared to the secular trend. In the baseline model presented in this paper, the magnitude of the cut to higher education institutions is shown to be $29.6 million, or approximately 20%, compared to the 2004 mean, on average, as compared to institutions that were not subject to guaranteed tuition laws. Both the direction and the magnitude of the finding are robust to alternative specifications including models that compare institutions with similar governance structures, Carnegie classifications, and in models that consider the impact over time. Inferences about the merits of guaranteed tuition laws are also discussed.

State general appropriations serve as the primary funding stream for public higher education in the United States. As such, this funding stream is a particularly important area for study in the field of education. This work seeks to contribute to the literature by presenting a better understanding of the relationship between state general appropriations and state-level tuition policies. States use a variety of policies to regulate institutional tuition levels and this work specifically investigates the impact of guaranteed tuition laws on state general appropriations for higher education.

Rising tuition has led to concerns about college affordability and numerous state and institutional policies have been used to address the issue. One approach is to freeze tuition for one or more years. Several university systems across the United States (for example, in Arizona, California, Iowa, Maine, Minnesota, and New Hampshire) have proposed tuition freezes in recent years in an effort to compel legislatures to maintain or increase their state support (Krogstad 2012; Kiley 2013). A related policy is a fixed rate tuition, or a tuition guarantee, such that students face the same price each year of their undergraduate program. Guaranteed tuition programs have increased in popularity over time. In 2008, 356 higher education institutions had guaranteed tuition plans; by 2011, 467 institutions in 44 states had implemented guaranteed tuition policies (IPEDS, n.d.).

Guaranteed tuition programs hold particular interest for study because they directly address issues of predictability in college pricing. By requiring institutions to lock in tuition rates, higher education prices become much more predictable to students and families. This feature of addressing the predictability of prices sets guaranteed tuition plans apart from other types of state-level tuition policies that generally only regulate the level of tuition (such as tuition freezes, tuition caps, and incentive programs that regulate the level of tuition based on either incentives for particular behavior or penalties for tuition increases above a certain threshold). Some state tuition policies consider net price by linking tuition levels to student financial aid, but these policies also address the level of the net price, not its predictability. For a more complete review of state tuition control policies, see Kim and Ko (2014). The growth in the popularity of guaranteed tuition plans at the institutional and state levels highlights the interest in these plans as a tuition pricing tool. Unlike many other tuition policies, guaranteed tuition plans have not been extensively researched and this study intends to contribute to the scholarly literature on this topic. This work should also help to inform policymakers about the effectiveness of these programs.

Several states have explored guaranteed tuition policies. Illinois’ “Truth-in-Tuition” law took effect for its first cohort of freshmen in 2004. The law ensures that all incoming in-state students pay level tuition rates for the first four years of college at all of Illinois’ public four-year institutions (Illinois Public Act 093-0228...