Unintended Costs: The Hidden Consequences of Tuition Freezes and Caps

In the face of concerns about college affordability, tuition freezes and caps are becoming an increasingly popular policy tool for state governments to regulate public colleges. They are one of a rare set of policies that often receive bipartisan support. Both parties frame freezes and caps as beneficial for state residents, who will be enabled to afford a college education. From 1990 to 2019, 22 states implemented a tuition freeze or cap at least once. 

Under an effectively enforced tuition regulation (i.e., cap or freeze), colleges should not be able to increase sticker price tuition, either at all or by a large amount. However, sticker price is not the most relevant price for students. What students pay is their net price, which is the sticker price tuition minus any federal, state, private, and institutional financial aid they have received. 

In our analysis, we find that when four-year colleges lose revenue during a tuition cap or freeze, they respond by lowering institutional financial aid (i.e., grants/tuition reduction awards given at the institution’s discretion to students based on merit and/or financial need). That is, even when sticker price tuition is lowered, the price students pay may not be. 

We also find that at two-year colleges, where the role of institutional financial aid is limited, colleges instead respond by rapidly increasing tuition once the cap/freeze has been lifted, suggesting that abrupt ends to tuition freezes/caps may undermine the benefits provided to students during the freeze.