Economic and Demographic Effects on Investment in Higher Education

fiscal stringency are the underlying influences on the level of investment to be investigated in this paper. The relation of these underlying influences to human capital formation and to new aspects of investment behavior will be of interest to economists, whereas the current and future fiscal implications of these influences for institutions are more likely to be of interest to college administrators and others interested in higher education. The two most pervasive influences on real investment in higher education are found to be real family income and the percent of college-age young adults (and veterans) in the population. The influence of real income is well known to be consistent with prior cross-section findings. But it has a reasonable rationale, given imperfect capital markets for student loans, and implications for the future which normally have not been fully taken into account. Instead, the demographic effects following declines in the fertility rate which are seen to be influencing primary and secondary levels are often given almost exclusive emphasis. A third influence coming from public desires to increase access, represented by state and local support of junior colleges and also by the new expansion of the federal Basic Economic Opportunity Grant program, is significant. Fourth, although real interest rates have been a minor i fluence, and then only at private institutions where student borrowing has been more important, increases in prices raise costs to educational institutions and also curtail con-