Presented By: Department of Economics
Equilibrium Effects of Quality Regulation of For-Profit Higher Education
Nelson Oviedo, University of Michigan

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.