Working Paper: NBER ID: w18782
Authors: Brant Abbott; Giovanni Gallipoli; Costas Meghir; Giovanni L. Violante
Abstract: We examine the equilibrium effects of college financial aid policies building an overlapping generations life cycle model with education, labor supply, and saving decisions. Cognitive and non-cognitive skills of children depend on parental education and skills, and affect education and labor market outcomes. Education is funded by parental transfers that supplement grants, loans and student labor supply. Crowding out of parental transfers by government programs is sizable and cannot be ignored. The current system of federal aid improves long-run welfare by 6%. More generous ability-tested grants would increase welfare and dominate both an expansion of student loans and a labor tax cut.
Keywords: education policy; financial aid; intergenerational transfers; welfare; equilibrium effects
JEL Codes: E24; I22; J23; J24
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| College financial aid policies (I22) | Educational attainment (I21) |
| College financial aid policies (I22) | Welfare outcomes (I38) |
| More generous ability-tested grants (I28) | Greater welfare improvements (D69) |
| Government grants (H81) | Crowding out of parental transfers (D15) |
| Financial aid policies (I22) | Aggregate long-run effects (C22) |
| Parental education and ability (I24) | Children's skills (G53) |