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Merit Aid and Sorting: The Effects of HOPE-Style Scholarships on College Ability Stratification

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Author Info
Christopher Cornwell () (University of Georgia)
David B. Mustard () (University of Georgia and IZA Bonn)

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Abstract

In the last fifteen years there has been a significant increase in merit aid. Coincident with this increase in merit aid has been increased attention to sorting in various aspects of life, especially in education. This paper examines the extent to which merit-based aid exacerbates or ameliorates sorting by ability in higher education. We use panel data from Peterson’s Guide to Colleges and the Integrated Postsecondary Education Data System (IPEDS) to evaluate this relationship. Our difference-in-differences estimates show that HOPE increased the quality of entering freshmen in Georgia institutions relative to their outof- state peers. At the highest-quality institutions HOPE raised all measures of student quality and the homogeneity of students by ability. The lowest-quality institutions experienced no statistically significant effect from HOPE on any measure of student quality. We conclude that state-sponsored merit aid programs increased the retention of high ability students for college and also increased the ability stratification of institutions within states. We also examined two indirect measures of student selectivity-acceptance and yield rates. HOPE decreases acceptance rates at all types of institutions, but the percentage change is largest at the universities, which are most space constrained. HOPE increased yield rates for universities but not for any other institution categories. Together these results suggest that HOPE substantially increased the selectivity at universities.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 1956.

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Length: 36 pages
Date of creation: Jan 2006
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Handle: RePEc:iza:izadps:dp1956

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Keywords: education sorting stratification

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I2 - Health, Education, and Welfare - - Education

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References listed on IDEAS
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  1. Stephen V. Cameron & James J. Heckman, 1999. "The Dynamics of Educational Attainment for Blacks, Hispanics, and Whites," NBER Working Papers 7249, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  2. Christopher M. Cornwell & David B. Mustard & Deepa Sridhar, 2005. "The Enrollment Effects of Merit-Based Financial Aid: Evidence from Georgia's HOPE Scholarship," HEW 0501002, EconWPA. [Downloadable!]
  3. Behrendt, Amy & Eisenach, Jeffrey & Johnson, William R., 1986. "Selectivity bias and the determinants of SAT scores," Economics of Education Review, Elsevier, vol. 5(4), pages 363-371, August. [Downloadable!] (restricted)
  4. John Bound & Jeffrey Groen & Gabor Kezdi & Sarah Turner, 2001. "Trade in University Training: Cross-State Variation in the Production and Use of College-Educated Labor," NBER Working Papers 8555, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  5. Epple, Dennis & Romano, Richard & Sieg, Holger, 2000. "Peer Effects, Financial Aid, and Selection of Students into Colleges and Universities: An Empirical Analysis," Working Papers 00-02, Duke University, Department of Economics. [Downloadable!]
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  6. Caroline M. Hoxby & Bridget Terry, 1999. "Explaining Rising Income and wage Inequality Among the College Educated," NBER Working Papers 6873, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  7. Josh Angrist, 2000. "Consequences of Imbalanced Sex Ratios: Evidence from America's Second Generation," NBER Working Papers 8042, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  8. Heckman, James J & Lochner, Lance & Taber, Christopher, 1998. "General-Equilibrium Treatment Effects: A Study of Tuition Policy," American Economic Review, American Economic Association, vol. 88(2), pages 381-86, May. [Downloadable!] (restricted)
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  9. James J. Heckman, 1999. "Policies to Foster Human Capital," NBER Working Papers 7288, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  10. Epple, Dennis & Figlio, David & Romano, Richard, 2004. "Competition between private and public schools: testing stratification and pricing predictions," Journal of Public Economics, Elsevier, vol. 88(7-8), pages 1215-1245, July. [Downloadable!] (restricted)
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  11. Kane, Thomas J & Rouse, Cecilia Elena, 1995. "Labor-Market Returns to Two- and Four-Year College," American Economic Review, American Economic Association, vol. 85(3), pages 600-614, June. [Downloadable!] (restricted)
  12. Susan Dynarski, 2000. "Hope for Whom? Financial Aid for the Middle Class and Its Impact on College Attendance," NBER Working Papers 7756, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  13. Cornwell, Christopher M. & Lee, Kyung Hee & Mustard, David B., 2003. "The Effects of Merit-Based Financial Aid on Course Enrollment, Withdrawal and Completion in College," IZA Discussion Papers 820, Institute for the Study of Labor (IZA). [Downloadable!]
  14. Raquel Fernandez, 2001. "Sorting, Education and Inequality," NBER Working Papers 8101, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  15. Fernández, Raquel, 2001. "Sorting, Education and Inequality," CEPR Discussion Papers 3020, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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