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Presented By: Department of Economics

Equilibrium Effects of Quality Regulation of For-Profit Higher Education

Nelson Oviedo, University of Michigan

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This paper studies the equilibrium effects of the Gainful Employment Rule (GER), the largest quality regulation policy in the U.S. higher education market. The rule required for-profit institutions to meet quality standards to retain access to their primary source of revenue: federal student aid. Using administrative data and an event-study design, I find that the GER increased for-profit exit rates by 5 percentage points, while surviving institutions reduced prices and enrollment by 4% and 20%, respectively. Untargeted competitors raised prices without enrollment losses, consistent with increased market power. Informed by these reduced-form estimates, I develop an empirical model of demand and supply with endogenous exit and a quality constraint to evaluate how counterfactual levels of regulatory stringency would shape the distribution of value-added within an equity–efficiency framework. I show that tuning regulatory stringency can increase equity without reducing efficiency.

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