$6 Can Make a Difference

In an era when sticker price at some colleges tops $60,000, it may seem odd to think that $6 could make a difference in students’ decisions about the institutions to which they apply.

But $6 could in fact make all the difference, suggests a study released Monday by the National Bureau of Economic Research (abstract available here). The study adds yet more evidence to the theory of “undermatching” – namely that significant numbers of low-income, high talent students are not applying to as many colleges, or colleges that are as competitive, as would benefit them.

Amanda Pallais, assistant professor of economics and social studies at Harvard University, studied the impact of a 1997 shift by ACT, which that year increased from three to four the number of score reports a student could send out to colleges without paying an additional fee. Before 1997, those who wanted to send four or more reports paid $6 per additional report.

Pallais found that, prior to 1997, over 80 percent of ACT takers sent exactly three score reports, and only 5 percent sent four. Immediately after the change was adopted, the percentage of students sending four reports rose to 75 percent while those sending three dropped to 10 percent. (The SAT already offered four reports and did not see a similar shift that year.)

Using data from the American Freshman Survey, Pallais then found that low-income students may have been the particular beneficiaries of the shift. In the two years after the switch, they showed a 20 percent increase in the number of applications sent. Further, she found that, on average, the ACT takers in these cohorts enrolled at more selective colleges than had been the case before the change.

The finding is consistent with recent work by Caroline Hoxby of Stanford University and Christopher Avery of Harvard University, who found in a paper published last year that highly qualified low-income high school students tend to apply to far fewer competitive colleges than do their better-off counterparts, and that a majority do not apply to a single competitive college. Their work has prompted debate over how to encourage more low-income students to apply.

Some have suggested that various waivers available from testing companies and colleges for application fees may not be enough, and that eliminating fees is the way to go. Reed College this year eliminated its application fee for that reason.

Pallais writes that the findings suggest that small financial charges can be meaningful. "Because the cost of sending an additional (non-free) ACT score was merely $6 throughout, this sizable behavioral change is surprising and suggests that students may use simple heuristics in making their application decisions. In such a setting, small policy perturbations can have large effects on welfare," she writes.

And she also suggests that the findings could mean that the shift from three to four free reports may be as much about defining the norm as about money – and that these definitions may be particularly important to low-income students.

"[S]tudents may interpret the ACT providing three (or four) free score reports as a signal that sending three (or four) applications is recommended and use that signal as a rule of thumb about how many colleges to apply to," she writes, noting that "college application guides show that many students are looking for an authority to provide a rule of thumb on how many colleges they should apply to.”