AUTHOR NAME – Steven L. Green

TITLE -- Revenue Effects of a Large Tuition Increase: An Econometric Case Study

AFFILIATION AND ADDRESS OF THE AUTHOR:

Baylor University

One Bear Place #98003

Waco, TX 76798-8003

EMAIL ADDRESS, TELEPHONE, AND FAX NUMBERS OF CORRESPONDING AUTHOR

Email: steve_green@baylor.edu

Telephone: 254-710-4543 (office); 254-715-2846 (cell)

Fax: 254-710-6142

ABSTRACT: Prior to the 2002-03 academic year, Baylor University’s posted tuition rates were considerably lower than those of many comparably ranked private universities. In that year, as part of a major strategic plan known as “Baylor 2012”, the tuition rate for new students was increased permanently by more than 30% relative to the 6-7% increases that occurred regularly before and after that year. This paper analyzes the effects of this tuition increase on net tuition revenue using a simultaneous equation econometric model of Baylor finances. The model is used to determine how Baylor finances would have evolved in the absence of the above-normal tuition increase. In addition, this “counterfactual” scenario is compared to what would have happened with the tuition increase under different assumptions about unfunded scholarships (price discounts). Net tuition revenue could have risen as much as 15%, but a significant increase in unfunded scholarships resulted in a net revenue yield of about 8%. Another simulation implies that failure to account for the enrollment effect of the higher tuition could have led to an overprediction of the increase in net tuition revenue by more than 100%.

KEYWORDS: Econometric Model, Simulation, Counterfactual Analysis, Tuition Revenue, Unfunded Discount Rate