Financial Aid Coordination and Student Debt

Abstract

Since 2002, a group of highly selective U.S. colleges and universities have used a limited antitrust exemption to coordinate student financial aid. We develop a theoretical model which illustrates that, if financial aid coordination can serve as a commitment device for colleges and universities to offer need-based aid rather than merit-based aid, student quality improves, and the share of enrolled low-income students increases. We show that empirical patterns are consistent with our model. The share of low and medium-income financial aid recipients is higher and median student debt is lower at institutions that participate in financial aid coordination.