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Student aid, academic achievement, and labor market behavior

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  • Schrøter Joensen, Juanna

    (University of Chicago)

  • Mattana, Elena

    (Aarhus University)

Abstract

How does the financial aid allocation mechanism affect student behavior? We provide a framework for quantifying the impact of financial aid on student debt, academic capital, and labor market outcomes. We specify and estimate a dynamic discrete choice model of simultaneous education, work, and student loan take-up decisions. We use administrative panel data and exploit exogenous variation from the 2001 Swedish Study Aid reform to estimate the model. The reform reduced the cost of working while enrolled, resulting in a 14 percentage points increase in students working during the academic year. The reform also increased (decreased) the cost of borrowing for low (high) earners. This decreased the share of low expected earners not taking up student loans by 2 percentage points, and increased the share of high expected earners taking up the full loan by 2 percentage points. The estimated model enables ex-ante evaluation of various changes to financial aid packages. We find that front-loading debt repayment – by increasing income-contingency or shortening the loan repayment period – reduces debt and lowers academic capital accumulation as students finance more of the college cost by working and less by taking-up loans. Income-contingency of repayments exhibits and elasticity of -0.72 for debt and -0.14 for income at exit, but is marginally decreasing. Changing the grant/loan composition of aid has little impact on human capital accumulation, but large impacts on student debt. This means that the government largely can decide who bears the college cost without affecting human capital accumulation.

Suggested Citation

  • Schrøter Joensen, Juanna & Mattana, Elena, 2017. "Student aid, academic achievement, and labor market behavior," Working Paper Series 2017:27, IFAU - Institute for Evaluation of Labour Market and Education Policy.
    • Handle: RePEc:hhs:ifauwp:2017_027
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    3. Ost, Ben & Pan, Weixiang & Webber, Doug, 2018. "The impact of mass layoffs on the educational investments of working college students," Labour Economics, Elsevier, vol. 51(C), pages 1-12.
    4. De Groote, Olivier, 2019. "Dynamic Effort Choice in High School: Costs and Benefits of an Academic Track," TSE Working Papers 19-1002, Toulouse School of Economics (TSE), revised Jun 2023.
    5. Chengfeng Zhang & Qiao Wu & Huijuan Wang & Xia Luo & Ning Wei & BingYu Pan & Jiajun Tong, 2021. "Factors Affecting Campus Loans in Western China," SAGE Open, , vol. 11(2), pages 21582440211, June.
    6. Sunha Myong & Jungho Lee, 2019. "Self-financing, Parental Transfer, and College Education," 2019 Meeting Papers 106, Society for Economic Dynamics.

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    More about this item

    Keywords

    student aid; education and labor market outcomes; dynamic discrete choice;
    All these keywords.

    JEL classification:

    • D90 - Microeconomics - - Micro-Based Behavioral Economics - - - General
    • H52 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Education
    • I21 - Health, Education, and Welfare - - Education - - - Analysis of Education
    • I22 - Health, Education, and Welfare - - Education - - - Educational Finance; Financial Aid
    • I28 - Health, Education, and Welfare - - Education - - - Government Policy
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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