Marginal Pricing and Student Investment in Higher Education

This paper examines the effect of marginal price on students' educational investments using rich administrative data on students at Michigan public universities. Students facing zero marginal price for credits above the full-time minimum (i.e., 12 credits) attempt and complete about the same average number of credits as those whose institutions charge per credit. Zero marginal price induces a modest share of students (i.e., 7 percent) to attempt up to one additional class (i.e., 3 credits) but also increases withdrawals, resulting in little impact on earned credits or the likelihood of meeting “on-time” benchmarks toward college completion. Consistent with theory, the moderate impact on attempted credits is largest among students who would otherwise locate at the full-time minimum, which include lower-achieving and socio-economically disadvantaged students