For-profit and traditional colleges: Institutional control, financial aid allocation, and net costs

I examine differences in the competitive behavior between for-profit and traditional universities by modeling how these institutions allocate financial aid packages and set net cost according to differing objective functions. I test the implications of the model using data from the 2003-2004 and 2007-2008 waves of the National Postsecondary Student Aid Survey. I use a hurdle model and correct for self-selection of students into institutions to estimate differences in pricing behavior. For-profit universities annually offer $819.69 less in institutional aid, while their students take on $1,978.45 more in unsubsidized student loans and pay a higher net cost of $3,713.58.