Can College Tuition Discounts Increase the Number of Graduates Who Remain in a State?
Firoozi (2026) examines whether reducing college tuition for out-of-state and international students increases enrollment and encourages graduates to remain in the state. He analyzes a randomized tuition-waiver lottery involving 1,333 students at a major research university, tracking enrollment, employment, and migration over 12 years. Each $10,000 in tuition relief increased university enrollment by 3.2 percentage points and the likelihood of remaining in the state by approximately 3.3 percentage points. The university lost just $835 in net revenue, while the state gained an estimated $25,302 in future earnings and $1,265 in tax revenue, primarily through retaining domestic nonresident students.
Why This Article Was Selected for The Policy Scientist
College tuition policies influence more than educational access and university finances; they also shape workforce development, geographic mobility, economic growth, and public revenues. These relationships are particularly important as states compete to attract and retain highly educated workers amid demographic changes and growing demand for specialized skills. Although researchers have extensively examined tuition and enrollment, less is known about graduates’ long-term migration decisions. This study makes an important contribution by linking tuition reductions to subsequent employment and geographic mobility. Its randomized controlled trial provides unusually strong causal evidence, although incomplete employment records and reliance on one university limit generalizability to other jurisdictions.
Full Citation and Link to Article
Firoozi, D. (2026). Nonresident tuition and human capital flows: Evidence from a lottery. American Economic Journal: Economic Policy. Advance online publication (forthcoming).
Central Research Question
How does the cost of attending college as a nonresident student influence enrollment decisions, long-term geographic mobility, and the distribution of economic benefits between universities and the states in which they operate? The study examines whether reducing tuition for out-of-state and international students increases their likelihood of enrolling at a particular university and subsequently remaining in the state as skilled workers. It also investigates whether the economic benefits of retaining these graduates justify the institutional revenue sacrificed through tuition discounts.
The central distinction concerns the competing financial incentives of universities and state governments. Universities generally evaluate nonresident tuition through its effects on enrollment and institutional revenue, while states have an additional interest in attracting educated workers who contribute to economic activity and future tax collections. Lower tuition may influence not only where students enroll but also where they establish careers after graduation. Consequently, tuition levels that maximize university revenue may differ substantially from those that maximize longer-term economic benefits within a state.
Previous Literature
Previous research has extensively examined how tuition policies influence college enrollment, institutional finances, and the allocation of educational opportunities. Bound and Turner (2007) investigate the relationship between nonresident enrollment and access to public higher education, while Bound et al. (2020) examine the growing importance of international students within American universities. This literature establishes that institutions face competing incentives when admitting nonresident students, who frequently pay substantially higher tuition than residents.
Knight and Schiff (2019) demonstrate that differences in tuition between residents and nonresidents can distort students' choices among universities, potentially reducing economic efficiency. Groen and White (2004) examine the geographic mobility of college graduates, establishing an important connection between higher education and regional workforce development. More recently, Beine et al. (2023) investigate how international student mobility can contribute to subsequent labor migration. Together, these studies suggest that tuition policies may influence the geographic distribution of educated workers, although direct causal evidence concerning long-term migration remains limited.
A related literature examines the economic consequences of attracting highly skilled workers. Kerr and Lincoln (2010) study the relationship between skilled immigration and innovation, while Peri et al. (2015) investigate the labor market consequences of immigration. These contributions establish the broader economic importance of skilled labor mobility. The present research extends these discussions by examining whether university tuition policies can causally influence where educated workers eventually reside.
Data
The analysis uses administrative records from a tuition-waiver lottery conducted in 2012 at a major North American research university belonging to the Association of American Universities. The university remains unidentified under the researcher's data agreement. The experimental sample consists of 1,333 admitted nonresident students originating from the United States and 44 other countries.
Students were randomly assigned tuition waivers worth $20,000, $30,000, or $40,000 over four academic years. The three groups contained 444, 444, and 445 students, respectively. Because every participant received some financial assistance, the experiment identifies the effects of differences in tuition discounts rather than the effects of receiving financial aid versus receiving none.
University admissions and financial aid records provide information about students' academic characteristics, family backgrounds, and initial enrollment decisions. These records are linked to National Student Clearinghouse data, which cover more than 95% of undergraduate enrollment at four-year American institutions. Long-term geographic mobility is measured using 2024 voter registration records supplied by L2 and employment information derived from LinkedIn profiles compiled by Revelio Labs.
The combined data follow students for approximately 12 years, permitting comparisons between initial enrollment and subsequent labor market outcomes. However, only about 46% of participants have identifiable geographic information from LinkedIn or voter registration records. Earnings estimates also depend partly on occupational information and imputed salaries, introducing uncertainty into the longer-term economic calculations.
Methods
The study employs a randomized controlled trial in which admitted students received tuition discounts determined by a computer-generated lottery. Random assignment provides a credible basis for identifying the causal effects of tuition differences because students' academic qualifications, family characteristics, and other preexisting attributes should be distributed approximately equally across treatment groups.
The researcher estimates how outcomes change with each additional $10,000 in tuition relief, using regression models with and without controls for predetermined student characteristics. Outcomes include university enrollment, enrollment within the university's state, subsequent geographic residence, employment characteristics, estimated earnings, and tax revenue. Linear probability models are used for binary outcomes, allowing treatment effects to be expressed directly in percentage points.
Balance tests generally support the integrity of random assignment, and the researcher reports no evidence that the probability of appearing in long-term employment records differs systematically across treatment groups. The analysis also distinguishes between domestic and international nonresidents and examines differences associated with students' intended academic majors.
An important limitation is that the experiment occurred after students had already applied and been admitted. Consequently, the estimates capture responses among existing applicants rather than the potentially larger effects of publicly advertised tuition reductions on applications and enrollment. Furthermore, the study estimates the direct effects of tuition discounts without fully incorporating possible broader labor market adjustments.
Findings/Size Effects
The results demonstrate that nonresident tuition reductions significantly affect both initial enrollment and long-term geographic mobility. For every $10,000 in additional tuition relief, enrollment at the participating university increases by 3.2 percentage points relative to a baseline enrollment rate of 16.2%. Enrollment at any university within the same state increases by 4.9 percentage points, compared with a baseline of 41.7%. These findings indicate that tuition discounts influence institutional choice and the geographic distribution of college students.
The financial consequences for the university are comparatively modest. Each $10,000 in tuition relief reduces revenue by $2,738 among students who would otherwise enroll, but increased enrollment generates approximately $1,903 in additional institutional profit. The resulting net loss is $835 per $10,000 in tuition relief offered. These estimates suggest that the university's existing tuition structure approaches the level that maximizes short-term institutional revenue.
Long-term migration effects are particularly substantial. Each $10,000 in tuition relief increases the probability of appearing on the university state's voter rolls approximately 12 years later by 3.3 percentage points. This effect is approximately equal to the increase in university enrollment, suggesting that tuition discounts influence not only enrollment decisions but also the subsequent geographic choices of students who would have enrolled regardless of tuition levels.
The estimated economic consequences extend beyond university finances. Each $10,000 in tuition relief generates approximately $25,302 in additional present-value earnings within the state and $1,265 in additional state tax revenue. The earnings measure represents projected economic activity associated with graduates residing in the state, rather than an equivalent increase in individual graduates' wages. These estimates substantially exceed the university's $835 revenue loss.
Effects differ considerably across student populations. Among domestic nonresidents who are American citizens or permanent residents, each $10,000 tuition waiver generates approximately $73,821 in additional state earnings. The corresponding estimate for international students is $11,679 and is statistically imprecise. The results also indicate stronger economic returns from tuition reductions among students intending to pursue STEM disciplines. These differences suggest that uniform nonresident tuition policies may obscure substantial variation in students' enrollment and migration responses.
Conclusion
The study demonstrates that nonresident tuition policies have consequences extending well beyond university enrollment and institutional finances. By influencing where graduates establish their careers, tuition discounts can affect the geographic distribution of skilled workers, regional economic activity, and future government revenues. The findings indicate that the tuition level maximizing institutional revenue may exceed the level associated with the greatest long-term fiscal benefits for the state.
The randomized design provides strong evidence that tuition differences causally influence enrollment and subsequent migration among admitted nonresident students. Nevertheless, the experiment's concentration at one selective research university, incomplete long-term employment records, and reliance on projected earnings limit the precision and generalizability of some economic estimates. The findings are most directly applicable to institutions serving academically qualified nonresident students with substantial geographic mobility.
More broadly, the research establishes that evaluating higher education finance solely through enrollment and tuition revenue can overlook important long-term economic consequences. It also identifies graduate retention, rather than enrollment growth alone, as a mechanism through which tuition policies influence state economies.
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