Marginal Returns to Public Universities

This paper studies the causal impacts of public universities on the outcomes of their marginally admitted students. The author uses administrative admission records spanning all 35 public universities in Texas, which collectively enroll 10 percent of American public university students, to systematically identify and employ decentralized cutoffs in SAT/ACT scores that generate discontinuities in admission and enrollment. The typical marginally admitted student completes an additional year of education in the four-year sector, is 12 percentage points more likely to earn a bachelor’s degree, and eventually earns 5-10 percent more than their marginally rejected but otherwise identical counterpart. Marginally admitted students pay no additional tuition costs thanks to offsetting grant aid; cost-benefit calculations show internal rates of return of 19-23 percent for the marginal students themselves, 10-12 percent for society (which must pay for the additional education), and 3-4 percent for the government budget. Finally, the author develops a method to disentangle separate effects for students on the extensive margin of the four-year sector versus those who would fall back to another four-year school if rejected. Substantially larger extensive margin effects drive the results.