Theory and Evidence on Student Enrollment: The Role of Government Policy and University Behavior

This paper examines how government policies regarding tuition and university subsidies impact student enrollment and public university behavior. We study a system where the federal government sets domestic tuition and regulates institutions. Analyzing a 30-year period, we evaluate three major reforms: the 1997 introduction of increased, differentiated tuition; the 2005 implementation of field-specific subsidies; and the 2012 incentives for enrollment expansion. Combining empirical evidence with a theoretical framework, we demonstrate that longrun tuition increases can boost enrollment, though effects vary by field and university type. Specifically, while uniform tuition hikes reduce overall enrollment, differentiated tuition tied to expected educational returns increases enrollment, particularly at research intensive institutions. Furthermore, universities reallocate seats toward higher-tuition fields, creating notable substitution effects. Finally, although institutions have incentives to maximize revenue via international tuition, policies promoting domestic expansion effectively mitigate international enrollment growth. Our results underscore that accounting for institutional behavior is essential when evaluating higher education policies.