Essays in State Funding for Higher Education

This thesis is a combination of two papers studying the effect of state funding for higher education on the price of education and student enrollment at institutions. The first paper evaluates the effectiveness of student aid in decreasing the price of higher education by investigating what portion of student aid dollars reach targeted students and what portion are absorbed by the state and universities through decreasing existing aid or increasing tuition. I find no evidence that either the state government or universities absorb student aid funds, suggesting that a dollar in state scholarships reduces a student's price of attending university by that dollar. I also find that state student aid increases resident student enrollment at both public and private universities and crowds non-resident students out of public universities. While the first paper demonstrates the effectiveness of state funding for higher education, the second paper studies the importance of the format of funding in decreasing students' price of enrollment and increasing enrollment at institutions. States can reduce the price of higher education by funding students directly, or by funding public institutions, which in turn charge lower in-state tuition. I compare funding public institutions to funding student directly and find that the format of funding has an important impact on the price of education and student enrollment across institutions. I find that redistributing state funding from public institutions into the hands of students reduces the price of attending both public and private institutions and increases student enrollment enrollment at private institutions. These findings suggest that funding students is more effective at decreasing the price of higher education and increasing student enrollment at institutions than funding public institutions.