IDEAS home Printed from https://ideas.repec.org/p/red/sed014/707.html
   My bibliography  Save this paper

Student Aid, Academic Achievement, and Labor Market Behavior: Grants or Loans?

Author

Listed:
  • Elena Mattana

    (Universite` Catholique de Louvain - CORE)

  • Juanna Joensen

    (Stockholm School of Economics)

Abstract

We provide a framework for quantifying the impacts of implicit incentives in study aid schemes. We specify and estimate a dynamic discrete choice model of simultaneous education, work, and student loan take-up decisions exploiting the 2001 Swedish Study Aid reform for identification. This enables ex-ante evaluation of various changes to financial aid schemes. We find that the grant-loan mix does not affect student behavior as long as there is more weight on loans. When there is substantially higher weight on grants, however, more students graduate but stay enrolled longer. Moving from an income contingent to an annuity based loan repayment scheme substantially decreases student debt accumulation and improves the effectiveness of academic capital accumulation.

Suggested Citation

  • Elena Mattana & Juanna Joensen, 2014. "Student Aid, Academic Achievement, and Labor Market Behavior: Grants or Loans?," 2014 Meeting Papers 707, Society for Economic Dynamics.
    • Handle: RePEc:red:sed014:707
    as

    Download full text from publisher

    File URL: https://red-files-public.s3.amazonaws.com/meetpapers/2014/paper_707.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. John Bound & Sarah Turner, 2007. "Understanding the Increased Time to the Baccalaureate Degree," Discussion Papers 06-043, Stanford Institute for Economic Policy Research.
    2. Rust, John, 1987. "Optimal Replacement of GMC Bus Engines: An Empirical Model of Harold Zurcher," Econometrica, Econometric Society, vol. 55(5), pages 999-1033, September.
    3. Heckman, James & Singer, Burton, 1984. "A Method for Minimizing the Impact of Distributional Assumptions in Econometric Models for Duration Data," Econometrica, Econometric Society, vol. 52(2), pages 271-320, March.
    4. Helena Skyt Nielsen & Torben Sørensen & Christopher Taber, 2010. "Estimating the Effect of Student Aid on College Enrollment: Evidence from a Government Grant Policy Reform," NBER Chapters, in: Income Taxation, Trans-Atlantic Public Economics Seminar (TAPES), pages 185-215, National Bureau of Economic Research, Inc.
    5. Stephen V. Cameron & Christopher Taber, 2004. "Estimation of Educational Borrowing Constraints Using Returns to Schooling," Journal of Political Economy, University of Chicago Press, vol. 112(1), pages 132-182, February.
    6. James J. Heckman, 2010. "Building Bridges between Structural and Program Evaluation Approaches to Evaluating Policy," Journal of Economic Literature, American Economic Association, vol. 48(2), pages 356-398, June.
    7. Pedro Carneiro & James J. Heckman, 2002. "The Evidence on Credit Constraints in Post--secondary Schooling," Economic Journal, Royal Economic Society, vol. 112(482), pages 705-734, October.
    8. V. Joseph Hotz & Robert A. Miller & Seth Sanders & Jeffrey Smith, 1994. "A Simulation Estimator for Dynamic Models of Discrete Choice," Review of Economic Studies, Oxford University Press, vol. 61(2), pages 265-289.
    9. James Heckman & Flavio Cunha, 2007. "The Technology of Skill Formation," American Economic Review, American Economic Association, vol. 97(2), pages 31-47, May.
    10. Peter Arcidiacono & John Bailey Jones, 2003. "Finite Mixture Distributions, Sequential Likelihood and the EM Algorithm," Econometrica, Econometric Society, vol. 71(3), pages 933-946, May.
    11. Pietro Garibaldi & Francesco Giavazzi & Andrea Ichino & Enrico Rettore, 2012. "College Cost and Time to Complete a Degree: Evidence from Tuition Discontinuities," The Review of Economics and Statistics, MIT Press, vol. 94(3), pages 699-711, August.
    12. Ralph Stinebrickner & Todd Stinebrickner, 2008. "The Effect of Credit Constraints on the College Drop-Out Decision: A Direct Approach Using a New Panel Study," American Economic Review, American Economic Association, vol. 98(5), pages 2163-2184, December.
    13. V. Joseph Hotz & Robert A. Miller, 1993. "Conditional Choice Probabilities and the Estimation of Dynamic Models," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 60(3), pages 497-529.
    14. Edwin Leuven & Hessel Oosterbeek & Bas van der Klaauw, 2010. "The Effect of Financial Rewards on Students' Achievement: Evidence from a Randomized Experiment," Journal of the European Economic Association, MIT Press, vol. 8(6), pages 1243-1265, December.
    15. Edwin Leuven & Hessel Oosterbeek & Bas van der Klaauw, 2010. "The Effect of Financial Rewards on Students' Achievement: Evidence from a Randomized Experiment," Journal of the European Economic Association, MIT Press, vol. 8(6), pages 1243-1265, December.
    16. Keane, Michael P & Wolpin, Kenneth I, 1994. "The Solution and Estimation of Discrete Choice Dynamic Programming Models by Simulation and Interpolation: Monte Carlo Evidence," The Review of Economics and Statistics, MIT Press, vol. 76(4), pages 648-672, November.
    17. Kane, Thomas J., 2006. "Public Intervention in Post-Secondary Education," Handbook of the Economics of Education, in: Erik Hanushek & F. Welch (ed.), Handbook of the Economics of Education, edition 1, volume 2, chapter 23, pages 1369-1401, Elsevier.
    18. David Card & Dean R. Hyslop, 2005. "Estimating the Effects of a Time-Limited Earnings Subsidy for Welfare-Leavers," Econometrica, Econometric Society, vol. 73(6), pages 1723-1770, November.
    19. Philip Oreopoulos & Daniel Lang & Joshua Angrist, 2009. "Incentives and Services for College Achievement: Evidence from a Randomized Trial," American Economic Journal: Applied Economics, American Economic Association, vol. 1(1), pages 136-163, January.
    20. Philippe Belley & Lance Lochner, 2007. "The Changing Role of Family Income and Ability in Determining Educational Achievement," Journal of Human Capital, University of Chicago Press, vol. 1(1), pages 37-89.
    21. Avdic, Daniel & Gartell, Marie, 2011. "The study pace among college students before and after a student aid reform: some Swedish results," Arbetsrapport 2011:7, Institute for Futures Studies.
    22. Flavio Cunha & James J. Heckman, 2008. "Formulating, Identifying and Estimating the Technology of Cognitive and Noncognitive Skill Formation," Journal of Human Resources, University of Wisconsin Press, vol. 43(4).
    23. Susan M. Dynarski, 2003. "Does Aid Matter? Measuring the Effect of Student Aid on College Attendance and Completion," American Economic Review, American Economic Association, vol. 93(1), pages 279-288, March.
    24. Orazio P. Attanasio & Costas Meghir & Ana Santiago, 2012. "Education Choices in Mexico: Using a Structural Model and a Randomized Experiment to Evaluate PROGRESA," Review of Economic Studies, Oxford University Press, vol. 79(1), pages 37-66.
    25. Flavio Cunha & James J. Heckman & Susanne M. Schennach, 2010. "Estimating the Technology of Cognitive and Noncognitive Skill Formation," Econometrica, Econometric Society, vol. 78(3), pages 883-931, May.
    26. Matthew T. Johnson, 2013. "Borrowing Constraints, College Enrollment, and Delayed Entry," Journal of Labor Economics, University of Chicago Press, vol. 31(4), pages 669-725.
    27. Heckman, James J. & Lochner, Lance J. & Todd, Petra E., 2006. "Earnings Functions, Rates of Return and Treatment Effects: The Mincer Equation and Beyond," Handbook of the Economics of Education, in: Erik Hanushek & F. Welch (ed.), Handbook of the Economics of Education, edition 1, volume 1, chapter 7, pages 307-458, Elsevier.
    28. Kenneth I. Wolpin & Petra E. Todd, 2006. "Assessing the Impact of a School Subsidy Program in Mexico: Using a Social Experiment to Validate a Dynamic Behavioral Model of Child Schooling and Fertility," American Economic Review, American Economic Association, vol. 96(5), pages 1384-1417, December.
    29. Rothstein, Jesse & Rouse, Cecilia Elena, 2011. "Constrained after college: Student loans and early-career occupational choices," Journal of Public Economics, Elsevier, vol. 95(1), pages 149-163.
    30. Arcidiacono, Peter, 2004. "Ability sorting and the returns to college major," Journal of Econometrics, Elsevier, vol. 121(1-2), pages 343-375.
    31. Goodman, Joshua, 2008. "Who merits financial aid?: Massachusetts' Adams Scholarship," Journal of Public Economics, Elsevier, vol. 92(10-11), pages 2121-2131, October.
    32. Joshua Angrist & Eric Bettinger & Erik Bloom & Elizabeth King & Michael Kremer, 2002. "Vouchers for Private Schooling in Colombia: Evidence from a Randomized Natural Experiment," American Economic Review, American Economic Association, vol. 92(5), pages 1535-1558, December.
    33. Petra E. Todd & Kenneth I. Wolpin, 2003. "On The Specification and Estimation of The Production Function for Cognitive Achievement," Economic Journal, Royal Economic Society, vol. 113(485), pages 3-33, February.
    34. repec:mpr:mprres:7891 is not listed on IDEAS
    35. Altonji, Joseph G, 1993. "The Demand for and Return to Education When Education Outcomes Are Uncertain," Journal of Labor Economics, University of Chicago Press, vol. 11(1), pages 48-83, January.
    36. Peter Arcidiacono & Robert A. Miller, 2011. "Conditional Choice Probability Estimation of Dynamic Discrete Choice Models With Unobserved Heterogeneity," Econometrica, Econometric Society, vol. 79(6), pages 1823-1867, November.
    37. Alex Solis, 2017. "Credit Access and College Enrollment," Journal of Political Economy, University of Chicago Press, vol. 125(2), pages 562-622.
    38. Juanna Schrøter Joensen & Helena Skyt Nielsen, 2009. "Is there a Causal Effect of High School Math on Labor Market Outcomes?," Journal of Human Resources, University of Wisconsin Press, vol. 44(1).
    39. Susan Dynarski, 2008. "Building the Stock of College-Educated Labor," Journal of Human Resources, University of Wisconsin Press, vol. 43(3), pages 576-610.
    40. Eric Bettinger, 2004. "How Financial Aid Affects Persistence," NBER Chapters, in: College Choices: The Economics of Where to Go, When to Go, and How to Pay For It, pages 207-238, National Bureau of Economic Research, Inc.
    41. Keane, Michael P & Wolpin, Kenneth I, 1997. "The Career Decisions of Young Men," Journal of Political Economy, University of Chicago Press, vol. 105(3), pages 473-522, June.
    42. Cunha, Flavio & Heckman, James J. & Lochner, Lance, 2006. "Interpreting the Evidence on Life Cycle Skill Formation," Handbook of the Economics of Education, in: Erik Hanushek & F. Welch (ed.), Handbook of the Economics of Education, edition 1, volume 1, chapter 12, pages 697-812, Elsevier.
    43. Meta Brown & John Karl Scholz & Ananth Seshadri, 2012. "A New Test of Borrowing Constraints for Education," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 79(2), pages 511-538.
    44. Richard Blundell & Andrew Shephard, 2012. "Employment, Hours of Work and the Optimal Taxation of Low-Income Families," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 79(2), pages 481-510.
    45. Matthew T. Johnson, 2013. "Borrowing Constraints, College Enrollment, and Delayed Entry," Mathematica Policy Research Reports 57fc00235c3a47ff92cb253f9, Mathematica Policy Research.
    46. Keane, Michael P. & Todd, Petra E. & Wolpin, Kenneth I., 2011. "The Structural Estimation of Behavioral Models: Discrete Choice Dynamic Programming Methods and Applications," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 4, chapter 4, pages 331-461, Elsevier.
    47. Judith Scott-Clayton, 2011. "On Money and Motivation: A Quasi-Experimental Analysis of Financial Incentives for College Achievement," Journal of Human Resources, University of Wisconsin Press, vol. 46(3), pages 614-646.
    48. Juanna Schrøter Joensen & Helena Skyt Nielsen, 2013. "Math and Gender: Is Math a Route to a High-Powered Career?," Economics Working Papers 2013-01, Department of Economics and Business Economics, Aarhus University.
    49. Susan Dynarski & Judith Scott-Clayton, 2013. "Financial Aid Policy: Lessons from Research," NBER Working Papers 18710, National Bureau of Economic Research, Inc.
    50. Christopher Avery & Sarah Turner, 2012. "Student Loans: Do College Students Borrow Too Much--Or Not Enough?," Journal of Economic Perspectives, American Economic Association, vol. 26(1), pages 165-192, Winter.
    51. Keane, Michael P & Wolpin, Kenneth I, 2001. "The Effect of Parental Transfers and Borrowing Constraints on Educational Attainment," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 42(4), pages 1051-1103, November.
    52. Zvi Eckstein & Kenneth I. Wolpin, 1999. "Why Youths Drop Out of High School: The Impact of Preferences, Opportunities, and Abilities," Econometrica, Econometric Society, vol. 67(6), pages 1295-1340, November.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Sunha Myong & Jungho Lee, 2019. "Self-financing, Parental Transfer, and College Education," 2019 Meeting Papers 106, Society for Economic Dynamics.
    2. Yan Ji, 2017. "Job Search under Debt: Aggregate Implications of Student Loans," 2017 Meeting Papers 222, Society for Economic Dynamics.
    3. Susanna Sten-Gahmberg, 2020. "Student Heterogeneity and Financial Incentives in Graduate Education: Evidence from a Student Aid Reform," Education Finance and Policy, MIT Press, vol. 15(3), pages 543-580, Summer.
    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.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Elena Mattana & Juanna Joensen, 2016. "Student Aid, Academic Achievement, and Labor Market Behavior," 2016 Meeting Papers 1102, Society for Economic Dynamics.
    2. Sebastian Galiani & Juan Pantano, 2021. "Structural Models: Inception and Frontier," NBER Working Papers 28698, National Bureau of Economic Research, Inc.
    3. Elizabeth M. Caucutt & Lance Lochner, 2020. "Early and Late Human Capital Investments, Borrowing Constraints, and the Family," Journal of Political Economy, University of Chicago Press, vol. 128(3), pages 1065-1147.
    4. Juanna Schrøter Joensen, 2010. "Timing and Incentives: Impacts of Student Aid on Academic Achievement," 2010 Meeting Papers 823, Society for Economic Dynamics.
    5. Aguirre, Josefa, 2021. "Long-term effects of grants and loans for vocational education," Journal of Public Economics, Elsevier, vol. 204(C).
    6. Gianluca Violante & Giovanni Gallipoli & Costas Meghir, 2005. "Education Decisions, Equilibrium Policies and Wages Dispersion," 2005 Meeting Papers 522, Society for Economic Dynamics.
    7. Andrews, Rodney J. & Imberman, Scott A. & Lovenheim, Michael F., 2020. "Recruiting and supporting low-income, high-achieving students at flagship universities," Economics of Education Review, Elsevier, vol. 74(C).
    8. Brant Abbott & Giovanni Gallipoli & Costas Meghir & Giovanni L. Violante, 2019. "Education Policy and Intergenerational Transfers in Equilibrium," Journal of Political Economy, University of Chicago Press, vol. 127(6), pages 2569-2624.
    9. Lutz Hendricks & Oksana Leukhina, 2018. "The Return To College: Selection And Dropout Risk," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 59(3), pages 1077-1102, August.
    10. George Bulman & Robert Fairlie & Sarena Goodman & Adam Isen, 2021. "Parental Resources and College Attendance: Evidence from Lottery Wins," American Economic Review, American Economic Association, vol. 111(4), pages 1201-1240, April.
    11. Aguirregabiria, Victor & Mira, Pedro, 2010. "Dynamic discrete choice structural models: A survey," Journal of Econometrics, Elsevier, vol. 156(1), pages 38-67, May.
    12. Heckman, James J. & Raut, Lakshmi K., 2016. "Intergenerational long-term effects of preschool-structural estimates from a discrete dynamic programming model," Journal of Econometrics, Elsevier, vol. 191(1), pages 164-175.
    13. Keane, Michael P. & Todd, Petra E. & Wolpin, Kenneth I., 2011. "The Structural Estimation of Behavioral Models: Discrete Choice Dynamic Programming Methods and Applications," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 4, chapter 4, pages 331-461, Elsevier.
    14. Jacob Arendt, 2013. "The effect of public financial aid on dropout from and completion of university education: evidence from a student grant reform," Empirical Economics, Springer, vol. 44(3), pages 1545-1562, June.
    15. Ferreyra,Maria Marta & Garriga,Carlos & Martin,Juan David & Sanchez Diaz,Angelica Maria, 2020. "Raising College Access and Completion : How Much Can Free College Help ?," Policy Research Working Paper Series 9428, The World Bank.
    16. Balmaceda, Felipe, 2021. "A failure of the market for college education and on-the-job human capital," Economics of Education Review, Elsevier, vol. 84(C).
    17. Matsuda, Kazushige, 2020. "Optimal timing of college subsidies: Enrollment, graduation, and the skill premium," European Economic Review, Elsevier, vol. 129(C).
    18. Philipp Eisenhauer & James J. Heckman & Stefano Mosso, 2015. "Estimation Of Dynamic Discrete Choice Models By Maximum Likelihood And The Simulated Method Of Moments," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 56(2), pages 331-357, May.
    19. Lance Lochner & Alexander Monge-Naranjo, 2014. "Student Loans and Repayment: Theory, Evidence and Policy," Working Papers 2014-40, Federal Reserve Bank of St. Louis.
    20. Matthew T. Johnson, 2013. "Borrowing Constraints, College Enrollment, and Delayed Entry," Journal of Labor Economics, University of Chicago Press, vol. 31(4), pages 669-725.

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:red:sed014:707. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Christian Zimmermann (email available below). General contact details of provider: https://edirc.repec.org/data/sedddea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.