The effects of class size on student grades at a public university

We model how class size affects the grade higher education students earn and we test the model using an ordinal logit with and without fixed effects on over 760,000 undergraduate observations from a northeastern public university. We find that class size negatively affects grades for a variety of specifications and subsets of the data, as well as for the whole data set from this school. The specifications tested hold constant for academic department, peer effects (relative ability in class), student ability, level of student, level of course, gender, minority status, and other factors. Average grade point declines as class size increases, precipitously up to class sizes of twenty, and more gradually but monotonically through larger class sizes. The evidence is that this is not exclusively a small class effect. We conclude that there are diseconomies of scale associated with a deterioration of student outcomes as class sizes grow larger. The cost of this deterioration is not quantifiable with our data, as much of the costs are non-market costs and unobservable. Future studies of economies of scale in higher education need to address the traditional assumption of constant product quality.