247 R.K. Toutkoushian Economics of Education Review 20 2001 245–262
2. Literature review
Student demand for higher education refers to the will- ingness and ability of potential college students to pursue
a postsecondary education. The term “demand” could refer to an individual’s interest in pursuing higher edu-
cation in general or choosing a single institution or cate- gory of institution e.g., public. Economic models of
student choice assert that individuals will pursue a col- lege education when the expected net return from college
benefits minus costs exceed the expected net return from all other ways in which they could spend their time
Becker, 1990; Clotfelter, 1993. Human capital theory suggests that time spent by individuals in college is
viewed as an investment in their future Becker, 1962. When the benefits from attending college rise, holding
costs constant, not surprisingly the theory predicts that the demand for college will rise. Likewise, an increase
in the costs of attendance would lead to a predicted decrease in the number of individuals interested in
higher education.
Studies of student demand date back to the work by Ostheimer 1953. As noted by Becker 1990, beginning
in the 1960s statistical models, such as the one used by Campbell and Siegel 1967, tried to explain changes in
higher education demand over time. There are many reviews of student demand studies that have been pub-
lished including Jackson and Weathersby 1975, Radner and Miller 1975, Cohn and Morgan 1978, Hossler,
Braxton and Coppersmith 1989, Becker 1990 and Paulsen 1990. Interested readers are directed to these
sources for a more extensive description of early studies on this topic.
The variables chosen to explain student demand vary depending in part on whether time-series or cross-sec-
tional data are being used. Time-series studies examine the relationships between factors of interest and the
demand of groups of students for postsecondary edu- cation. In this instance, the dependent variable is typi-
cally either the proportion or number of eligible students enrolling in college each year Campbell Siegel, 1967;
Sies, 1973; Lehr Newton, 1978; Doyle Cicarelli, 1980; Shim, 1990; Parker Summers, 1993; Hsing
Chang, 1996; Wetzel, O’Toole, Peterson, 1998. In contrast, cross-section studies focus on how selected fac-
tors influence the postsecondary decisions of individual students Christiansen, Melder, Weisbrod, 1975;
Ehrenberg Sherman, 1984; Fuller, Manski, Wise, 1982; Venti Wise, 1983; Carter Savoca, 1984;
Kodde Ritzen, 1988; Savoca, 1990; Moore, Studen- mund, Slobko, 1991; Rouse, 1994; Weiler, 1994;
DesJardins, Dundar, Hendel, 1999.
Studies using time-series or cross-sectional data vary with regard to how student demand is defined. The
majority of studies to date have used enrollments as the measure of student demand. Venti and Wise 1982 note
that while much research focuses on college attendance, other important aspects of college choice that come
before the enrollment decision are often ignored. Spies 1973, Becker 1990 and Savoca 1990 argue that this
presents some analytical problems for those interested in explaining how key factors influence student demand.
Attendance figures for most institutions depend not only on student demand but also the supply of spaces made
available by the institution. Therefore, it is difficult to identify if changes in enrollments represent changes in
student demand or institutional supply.
1
Studies of enrollment behavior often ignore how changes in factors
such as tuition rates affect the size and composition of the applicant pool. Savoca 1990 further notes that the
enrollment sensitivity to tuition may be underestimated in empirical studies if tuition and enrollments affect
each other.
As a result, some researchers turned their attention to the decision of individuals to apply for admission. Spies
1973 used data on a sample of students who scored 1100 or higher on the SAT to examine how factors
influence whether they apply to select groups of mostly private institutions. Venti and Wise 1982 and Savoca
1990 analyzed cross-sectional data on students from the National Longitudinal Study of the High School
Class of 1972 to estimate student demand models based on whether individuals applied to college. Student appli-
cation behavior has also been examined by Chapman 1979 and Paulsen 1990, and others. These studies
show that many of the same aspects of student demand posited about enrollment behavior are often found when
looking at the application behavior of students.
A few studies have used data on students who have taken a college entrance exam to study application
behavior. In addition to Spies 1973, Tierney 1983 used cluster analysis to group Pennsylvania students who
had taken either the SAT or ACT according to the type of institution to which they had their test scores sent.
Weiler 1994 matched data on students having their SAT scores sent to a particular institution with those who
applied for admission and estimated models to explain what factors influenced a student’s decision to apply to
the school, given that they were considering the insti- tution. More recently, DesJardins et al. 1999 matched
cross-sectional data on all students within a five-state area who took the ACT to applicants at the University
1
This problem is referred to in the economics literature as the “identification problem” see Radner Miller, 1975;
Becker, 1990. The identification of the demand equation requires that factors be found that are posited to affect insti-
tutional supply for postsecondary education and not student demand. Becker 1990 in particular notes that economists have
not thus far developed a satisfactory rationale for how to prop- erly identify the student demand equation.
248 R.K. Toutkoushian Economics of Education Review 20 2001 245–262
of Minnesota to examine how particular characteristics explained whether a test taker in the region applied to
the university. These studies showed the potential value in using data on students taking college entrance exams
to represent the college-bound population and examining the different aspects of the college decision-making pro-
cess for individuals. None of these studies, however, analyzed why students initially considered attending
particular institutions.
Regardless of the analytical approach time-series ver- sus cross-section and the measure of student demand
applications versus enrollments, the main objective of all of these studies is to determine how individual, insti-
tutional, andor economic factors influence student demand for higher education. Cross-sectional studies
typically include measures of individual attributes that may influence a person’s propensity to attend college.
These factors include gender, raceethnicity, parental educational attainment and income, and academic ability
andor achievement. Student ability is of particular inter- est to colleges and universities because of the rising com-
petition for high-ability students and the effects of hav- ing more high-quality students on performance measures
such as retention and graduation rates. Venti and Wise 1982, 1983, Fuller et al. 1982 and Tierney 1983
argue that individuals sort themselves into institutions where their academic ability more closely resembles that
of the present student body. Cook and Frank 1993 found that as student quality rises, so does the reputation
of the institution, which in turn makes it easier to attract high-ability students. Litten and Hall 1989, in a survey
of high school students, found that students often judge college quality on the basis of the achievements and pro-
file of the current student body. Spies 1973, Venti and Wise 1983 and Weiler 1994 argue that the self-selec-
tion is based on how students perceive their chances of completing a degree, and the expected gains if they are
able to complete a degree. If the gains from college are only received by successfully completing a degree, then
many students will be discouraged from applying to andor attending institutions where their ability falls well
below that of the average student. Student ability can also affect institutional choice if students believe that
colleges and universities provide employers with an inexpensive screening mechanism for workers Arrow,
1973; Spence, 1974; Cook Frank, 1993.
Despite the wide variations in empirical approaches to estimating student demand functions, a number of fairly
consistent findings have emerged from the published studies to date. First and foremost is that student demand
is relatively insensitive to changes in the cost of attend- ance Becker, 1990; McPherson Shapiro, 1998; Wet-
zel et al., 1998. Second, student ability and achievement measures such as standardized test scores and high
school grades are found to affect the overall demand for higher education as well as the type of institution
demanded by students. A priori, income should have a positive effect on stud-
ent demand in that as family income rises students are better able to afford a college education.
2
The income effect could also affect the types of institutions con-
sidered by students. One major concern of policymakers is that students from lower-income families may be more
restricted than other students in their choice of postsec- ondary education provider as a result of their lower
ability to pay for college. Empirical studies have found that income has a positive effect on student demand for
higher education Spies, 1973; Venti Wise, 1983; Becker, 1990; Shim, 1990; Rouse, 1994. Venti and
Wise 1982, Savoca 1990 and Weiler 1994 found that family income has a positive effect on the prob-
ability of a student applying to college. Other studies have suggested that family income may affect the types
of institutions chosen by students. McPherson and Shapiro 1998 argue that there is a growing gap in the
four-year college participation rates of students from low- and high-income families, with students from
lower-income families being increasingly served by two- year colleges. Doyle and Cicarelli 1980 found that fam-
ily income has a negative effect on student demand for public four-year institutions, and DesJardins et al. 1999
showed that students from low- and medium-income families are more likely than other students to apply to
a particular four-year public university.
While fewer studies have examined the effect of par- ental education on student demand, those that have, gen-
erally have shown that the demand for higher education rises with parental education. Rouse 1994 found that
first-generation students were more likely to begin their postsecondary education in two-year versus four-year
institutions. Venti and Wise 1982 and Savoca 1990 showed that students with highly-educated parents had a
greater probability than other students of applying to col- lege. In contrast, Spies 1973 found that parental edu-
cation had no effect on a student’s interest in selective institutions. Kodde and Ritzen 1988 focused on the
impact of parental education on student demand for higher education in The Netherlands. They found that
parental
education by itself had little effect
on enrollments, but had a much larger effect on enrollments
when considered in conjunction with family income.
2
If individuals were always able to borrow money to attend college, then income would becomes less important in terms of
making higher education affordable because they could incor- porate the costs of repaying loans into their net expected benefit
calculations for college attendance. To the extent that there are imperfect capital markets, this is not always possible and hence
income is expected to play a role in financing postsecondary education see Kodde Ritzen, 1988.
249 R.K. Toutkoushian Economics of Education Review 20 2001 245–262
They attributed this result to the connection between par- ental educational attainment and family income.
3. Data description
