Price and Demand for Higher Education: How College Tuition Fees Affect Major Choice Among Sociodemographic Groups

Abstract

In 2012, UK university tuition fees trebled for approximately 85% of applicants. This paper exploits this policy as a natural experiment to estimate the effect of a tuition fee increase on aggregate demand for higher education, aggregate demand for each of the 16 college major offerings in the UK, demand for higher education across different sociodemographic groups, and different sociodemographics’ demand for each college major offering. My difference-in-differences research design better addresses potential confounding anticipation effects that may have biased previous studies’ results and adds to the existing literature on the relationship between price and demand for higher education. I find that the policy reduced aggregate demand for university degrees by 4% and that demand fell more for White students and those who reside in boroughs that have had historically high levels of university participation since these groups have more elastic demand for university in the UK than minority groups. I also find that demand for college majors that are essential for associated employment (e.g. Law, Medicine and Dentistry) increased in response to the policy change, while demand for nonessential college majors (e.g. Business and Administration Studies, Computer Sciences) decreased. The effect on demand for college majors was more pronounced for White individuals than minorities due to the interaction of these two forces: the elasticity of a sociodemographic group’s demand and the necessity of a college major. Finally, I find that the policy reduced female STEM applications more than male STEM applications. This finding is particularly noteworthy since it counteracts higher education policymakers’ efforts to increase the number of women in STEM-field majors.