Working Paper: NBER ID: w7422
Authors: Susan M. Dynarski
Abstract: Does student aid increase college attendance or simply subsidize costs for infra-marginal students? Settling the question empirically is a challenge, because aid is correlated with many characteristics that influence educational investment decisions. A shift in financial aid policy that affects some youth but not others can provide an identifying source of variation in aid. In 1982, Congress eliminated the Social Security Student Benefit Program, which at its peak provided grants totaling $3.7 billion a year to one out of ten college students. Using the death of a parent as a proxy for Social Security beneficiary status, I find that offering $1,000 ($1998) of grant aid increases educational attainment by about 0.16 years and the probability of attending college by four percentage points. The elasticities of attendance and completed years of college with respect to schooling costs are 0.7 to 0.8. The evidence suggests that aid has a 'threshold effect': a student who has crossed the hurdle of college entry with the assistance of aid is more likely to continue schooling later in life than one who has never attempted college. This is consistent with a model in which there are fixed costs of college entry. Finally, a cost-benefit analysis indicates that the aid program examined by this paper was a cost-effective use of government resources.
Keywords: No keywords provided
JEL Codes: I22; J24
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Elimination of the social security student benefit program (H55) | Reduced probability of college attendance (D29) |
| Offering $1,000 in grant aid (I22) | Increases educational attainment (I21) |
| Offering $1,000 in grant aid (I22) | Increases probability of attending college (D29) |
| Financial aid (I22) | Increases college attendance and completion rates (I23) |
| Aid (F35) | Higher likelihood of continuing education for those who enter college (I23) |
| Schooling costs (I21) | Attendance and completed years of college (I21) |
| Cost-effective aid program (F35) | Positive impact on educational outcomes (I24) |