This paper examines the divergence of interest between universities and state governments concerning standards for admitting in-state versus out-of-state students. We find that public universities set lower minimum admissions standards for in-state than out-of-state applicants, presumably in response to state pressure; while private universities treat both groups equally. However, we also find that favoring in-state applicants goes against states’ long-term financial interest. This is because marginal out-of-state students pay higher tuition than marginal in-state students, pay more in future state taxes, and are equally influenced in whether they locate in the state after graduation by attending public university there.