Price Discrimination and Public Policy in the US College Market.

This article examines the impact of allowing U.S. colleges to use students’ Free Application for Federal Student Aid (FAFSA) information in their individualized pricing decisions. Using a structural model of college pricing framed as a first-price auction and student-level data from the National Postsecondary Student Aid Study, the study finds that FAFSA access enables substantial price discrimination, with colleges capturing about 70% of the match surplus on average. Simulated counterfactuals restricting FAFSA information show that up to 13% of students would be inefficiently priced out of elite colleges, yet student welfare would increase due to lower prices for most remaining students. While FAFSA-based pricing redistributes resources from higher- to lower-income students on average, this redistribution is imprecise: one-third of low-income students are harmed, and some high-income students benefit. The findings highlight a tradeoff between efficiency, equity, and student welfare in the use of FAFSA data for college pricing.