IDEAS home Printed from https://ideas.repec.org/a/eee/pubeco/v190y2020ics0047272720301171.html
   My bibliography  Save this article

When financial aid is scarce: The challenge of allocating college aid where it is needed most

Author

Listed:
  • Anderson, Drew M.

Abstract

Inequality in college completion by income is a persistent problem, often addressed through financial aid to lower-income students. Prior research has found mixed effects of financial aid, but research designs have not identified effects for the poorest students who may benefit the most. This study exploits an eligibility cutoff induced by first-come first-served allocation of funds in the state of Wisconsin. The analysis focuses on two-year technical colleges, where there was a large funding shortage affecting students at all income levels. I find positive effects of grant aid in reducing dropout and supporting degree completion, with larger positive effects for the poorest students.

Suggested Citation

  • Anderson, Drew M., 2020. "When financial aid is scarce: The challenge of allocating college aid where it is needed most," Journal of Public Economics, Elsevier, vol. 190(C).
    • Handle: RePEc:eee:pubeco:v:190:y:2020:i:c:s0047272720301171
    DOI: 10.1016/j.jpubeco.2020.104253
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0047272720301171
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.jpubeco.2020.104253?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Jeffrey T. Denning, 2019. "Born under a Lucky Star: Financial Aid, College Completion, Labor Supply, and Credit Constraints," Journal of Human Resources, University of Wisconsin Press, vol. 54(3), pages 760-784.
    2. Jeffrey R. Brown & Caroline M. Hoxby, 2014. "How the Financial Crisis and Great Recession Affected Higher Education," NBER Books, National Bureau of Economic Research, Inc, number brow12-2.
    3. Lance J. Lochner & Alexander Monge-Naranjo, 2011. "The Nature of Credit Constraints and Human Capital," American Economic Review, American Economic Association, vol. 101(6), pages 2487-2529, October.
    4. Robert Kelchen & Sara Goldrick-Rab & Braden Hosch, 2017. "The Costs of College Attendance: Examining Variation and Consistency in Institutional Living Cost Allowances," The Journal of Higher Education, Taylor & Francis Journals, vol. 88(6), pages 947-971, November.
    5. Sebastian Calonico & Matias D. Cattaneo & Rocio Titiunik, 2014. "Robust Nonparametric Confidence Intervals for Regression‐Discontinuity Designs," Econometrica, Econometric Society, vol. 82, pages 2295-2326, November.
    6. Jeffrey T. Denning & Benjamin M. Marx & Lesley J. Turner, 2019. "ProPelled: The Effects of Grants on Graduation, Earnings, and Welfare," American Economic Journal: Applied Economics, American Economic Association, vol. 11(3), pages 193-224, July.
    7. William N. Evans & Melissa S. Kearney & Brendan Perry & James X. Sullivan, 2020. "Increasing Community College Completion Rates Among Low‐Income Students: Evidence from a Randomized Controlled Trial Evaluation of a Case‐Management Intervention," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 39(4), pages 930-965, September.
    8. Lisa Barrow & Lashawn Richburg-Hayes & Cecilia Elena Rouse & Thomas Brock, 2014. "Paying for Performance: The Education Impacts of a Community College Scholarship Program for Low-Income Adults," Journal of Labor Economics, University of Chicago Press, vol. 32(3), pages 563-599.
    9. Matias D. Cattaneo & Michael Jansson & Xinwei Ma, 2020. "Simple Local Polynomial Density Estimators," Journal of the American Statistical Association, Taylor & Francis Journals, vol. 115(531), pages 1449-1455, July.
    10. 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.
    11. Xu, Ke-Li, 2017. "Regression discontinuity with categorical outcomes," Journal of Econometrics, Elsevier, vol. 201(1), pages 1-18.
    12. 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.
    13. Benjamin M. Marx & Lesley J. Turner, 2019. "Student Loan Nudges: Experimental Evidence on Borrowing and Educational Attainment," American Economic Journal: Economic Policy, American Economic Association, vol. 11(2), pages 108-141, May.
    14. Webber, Douglas A., 2017. "State divestment and tuition at public institutions," Economics of Education Review, Elsevier, vol. 60(C), pages 1-4.
    15. 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.
    16. 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.
    17. Matias D. Cattaneo & Rocío Titiunik & Gonzalo Vazquez-Bare, 2020. "Analysis of regression-discontinuity designs with multiple cutoffs or multiple scores," Stata Journal, StataCorp LP, vol. 20(4), pages 866-891, December.
    18. Imbens, Guido W. & Lemieux, Thomas, 2008. "Regression discontinuity designs: A guide to practice," Journal of Econometrics, Elsevier, vol. 142(2), pages 615-635, February.
    19. Dynarski, Susan M. & Scott–Clayton, Judith E., 2006. "The Cost of Complexity in Federal Student Aid: Lessons From Optimal Tax Theory and Behavioral Economics," National Tax Journal, National Tax Association;National Tax Journal, vol. 59(2), pages 319-356, June.
    20. Page, Lindsay C. & Scott-Clayton, Judith, 2016. "Improving college access in the United States: Barriers and policy responses," Economics of Education Review, Elsevier, vol. 51(C), pages 4-22.
    21. 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.
    22. Congressional Budget Office, 2013. "The Pell Grant Program: Recent Growth and Policy Options," Reports 44448, Congressional Budget Office.
    23. Thomas J. Kane, 2003. "A Quasi-Experimental Estimate of the Impact of Financial Aid on College-Going," NBER Working Papers 9703, National Bureau of Economic Research, Inc.
    24. Benjamin L. Castleman & Lindsay C. Page, 2016. "Freshman Year Financial Aid Nudges: An Experiment to Increase FAFSA Renewal and College Persistence," Journal of Human Resources, University of Wisconsin Press, vol. 51(2), pages 389-415.
    25. Spence, Michael, 1977. "Nonlinear prices and welfare," Journal of Public Economics, Elsevier, vol. 8(1), pages 1-18, August.
    26. Benjamin L. Castleman & Bridget Terry Long, 2016. "Looking beyond Enrollment: The Causal Effect of Need-Based Grants on College Access, Persistence, and Graduation," Journal of Labor Economics, University of Chicago Press, vol. 34(4), pages 1023-1073.
    27. Carruthers, Celeste K. & Fox, William F., 2016. "Aid for all: College coaching, financial aid, and post-secondary persistence in Tennessee," Economics of Education Review, Elsevier, vol. 51(C), pages 97-112.
    28. William N. Evans & Melissa S. Kearney & Brendan Perry & James X. Sullivan, 2019. "A Cautionary Tale about Emergency Financial Assistance without Services: Evidence from a Randomized Controlled Trial Evaluation at a Community College," AEA Papers and Proceedings, American Economic Association, vol. 109, pages 218-222, May.
    29. Benjamin M. Marx & Lesley J. Turner, 2018. "Borrowing Trouble? Human Capital Investment with Opt-In Costs and Implications for the Effectiveness of Grant Aid," American Economic Journal: Applied Economics, American Economic Association, vol. 10(2), pages 163-201, April.
    30. Drew M. Anderson & Katharine M. Broton & Sara Goldrick‐Rab & Robert Kelchen, 2020. "Experimental Evidence on the Impacts of Need‐Based Financial Aid: Longitudinal Assessment of the Wisconsin Scholars Grant," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 39(3), pages 720-739, June.
    31. Neil S. Seftor & NSarah E. Turner, 2002. "Back to School: Federal Student Aid Policy and Adult College Enrollment," Journal of Human Resources, University of Wisconsin Press, vol. 37(2), pages 336-352.
    32. Caroline Minter Hoxby, 2004. "Introduction to "College Choices: The Economics of Where to Go, When to Go, and How to Pay For It"," NBER Chapters, in: College Choices: The Economics of Where to Go, When to Go, and How to Pay For It, pages 1-12, National Bureau of Economic Research, Inc.
    33. Congressional Budget Office, 2013. "The Pell Grant Program: Recent Growth and Policy Options," Reports 44448, Congressional Budget Office.
    34. Thomas J. Kane, 1995. "Rising Public College Tuition and College Entry: How Well Do Public Subsidies Promote Access to College?," NBER Working Papers 5164, National Bureau of Economic Research, Inc.
    35. Scott Carrell & Bruce Sacerdote, 2017. "Why Do College-Going Interventions Work?," American Economic Journal: Applied Economics, American Economic Association, vol. 9(3), pages 124-151, July.
    36. Congressional Budget Office, 2013. "The Pell Grant Program: Recent Growth and Policy Options," Reports 44448, Congressional Budget Office.
    37. Brigham R. Frandsen, 2017. "Party Bias in Union Representation Elections: Testing for Manipulation in the Regression Discontinuity Design when the Running Variable is Discrete," Advances in Econometrics, in: Regression Discontinuity Designs, volume 38, pages 281-315, Emerald Group Publishing Limited.
    38. Joshua Angrist & David Autor & Sally Hudson & Amanda Pallais, 2016. "Evaluating Post-Secondary Aid: Enrollment, Persistence, and Projected Completion Effects," NBER Working Papers 23015, National Bureau of Economic Research, Inc.
    39. Bridget Terry Long, 2014. "The Financial Crisis and College Enrollment: How Have Students and Their Families Responded?," NBER Chapters, in: How the Financial Crisis and Great Recession Affected Higher Education, pages 209-233, National Bureau of Economic Research, Inc.
    40. Philip Oreopoulos & Uros Petronijevic, 2013. "Making College Worth It: A Review of Research on the Returns to Higher Education," NBER Working Papers 19053, National Bureau of Economic Research, Inc.
    41. Matias D. Cattaneo & Nicolas Idrobo & Rocio Titiunik, 2019. "A Practical Introduction to Regression Discontinuity Designs: Foundations," Papers 1911.09511, arXiv.org.
    42. Andrew Barr, 2019. "Fighting for Education: Financial Aid and Degree Attainment," Journal of Labor Economics, University of Chicago Press, vol. 37(2), pages 509-544.
    43. Evans, Brent J. & Nguyen, Tuan D., 2019. "Monetary substitution of loans, earnings, and need-based aid in postsecondary education: The impact of Pell Grant eligibility," Economics of Education Review, Elsevier, vol. 70(C), pages 1-19.
    44. Sebastian Calonico & Matias D. Cattaneo & Max H. Farrell & Roc ́ıo Titiunik, 2017. "rdrobust: Software for regression-discontinuity designs," Stata Journal, StataCorp LP, vol. 17(2), pages 372-404, June.
    45. Susan Dynarski & Judith Scott-Clayton, 2013. "Financial Aid Policy: Lessons from Research," NBER Working Papers 18710, National Bureau of Economic Research, Inc.
    46. Anderson, Drew M. & Goldrick-Rab, Sara, 2018. "Aid after enrollment: Impacts of a statewide grant program at public two-year colleges," Economics of Education Review, Elsevier, vol. 67(C), pages 148-157.
    47. Eric P. Bettinger & Bridget Terry Long & Philip Oreopoulos & Lisa Sanbonmatsu, 2012. "The Role of Application Assistance and Information in College Decisions: Results from the H&R Block Fafsa Experiment," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 127(3), pages 1205-1242.
    48. Vivian Yuen Ting Liu, 2020. "Is School Out for the Summer? The Impact of Year-Round Pell Grants on Academic and Employment Outcomes of Community College Students," Education Finance and Policy, MIT Press, vol. 15(2), pages 241-269, Spring.
    49. Eric Bettinger & Oded Gurantz & Laura Kawano & Bruce Sacerdote & Michael Stevens, 2019. "The Long-Run Impacts of Financial Aid: Evidence from California's Cal Grant," American Economic Journal: Economic Policy, American Economic Association, vol. 11(1), pages 64-94, February.
    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. Celeste K. Carruthers & Christopher Jepsen, 2020. "Vocational Education: An International Perspective," CESifo Working Paper Series 8718, CESifo.
    2. Veronica Rattini, 2022. "The Effects of Financial Aid on Graduation and Labor Market Outcomes: New Evidence from Matched Education-Labor Data," CESifo Working Paper Series 10010, CESifo.
    3. Miller, Lois & Park, Minseon, 2022. "Making college affordable? The impacts of tuition freezes and caps," Economics of Education Review, Elsevier, vol. 89(C).
    4. Nicholas A. Wright & Akeem Carter, 2024. "Who Benefits Most? Examining the Heterogeneous Impact of a Need-Based Grant Program in Jamaica," Working Papers 2412, Florida International University, Department of Economics.

    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. Anderson, Drew M. & Goldrick-Rab, Sara, 2018. "Aid after enrollment: Impacts of a statewide grant program at public two-year colleges," Economics of Education Review, Elsevier, vol. 67(C), pages 148-157.
    2. Veronica Rattini, 2022. "The Effects of Financial Aid on Graduation and Labor Market Outcomes: New Evidence from Matched Education-Labor Data," CESifo Working Paper Series 10010, CESifo.
    3. Vivian Yuen Ting Liu, 2020. "Is School Out for the Summer? The Impact of Year-Round Pell Grants on Academic and Employment Outcomes of Community College Students," Education Finance and Policy, MIT Press, vol. 15(2), pages 241-269, Spring.
    4. David Card & Alex Solis, 2022. "Measuring the Effect of Student Loans on College Persistence," Education Finance and Policy, MIT Press, vol. 17(2), pages 335-366, Spring.
    5. Lindsay C. Page & Judith Scott-Clayton, 2015. "Improving College Access in the United States: Barriers and Policy Responses," NBER Working Papers 21781, National Bureau of Economic Research, Inc.
    6. Charles T. Clotfelter & Steven W. Hemelt & Helen F. Ladd, 2018. "Multifaceted Aid For Low‐Income Students And College Outcomes: Evidence From North Carolina," Economic Inquiry, Western Economic Association International, vol. 56(1), pages 278-303, January.
    7. Jeffrey T. Denning & Benjamin M. Marx & Lesley J. Turner, 2019. "ProPelled: The Effects of Grants on Graduation, Earnings, and Welfare," American Economic Journal: Applied Economics, American Economic Association, vol. 11(3), pages 193-224, July.
    8. Page, Lindsay C. & Scott-Clayton, Judith, 2016. "Improving college access in the United States: Barriers and policy responses," Economics of Education Review, Elsevier, vol. 51(C), pages 4-22.
    9. Bietenbeck, Jan & Leibing, Andreas & Marcus, Jan & Weinhardt, Felix, 2023. "Tuition fees and educational attainment," European Economic Review, Elsevier, vol. 154(C).
    10. Solis, Alex, 2019. "Measuring the Effect of Student Loans on the College Dropout Rate," Working Paper Series 2019:8, Uppsala University, Department of Economics.
    11. repec:hal:spmain:info:hdl:2441/527ht1a96e837pq2dubgo2953q is not listed on IDEAS
    12. Goodman, Sarena & Isen, Adam & Yannelis, Constantine, 2021. "A day late and a dollar short: Liquidity and household formation among student borrowers," Journal of Financial Economics, Elsevier, vol. 142(3), pages 1301-1323.
    13. repec:spo:wpmain:info:hdl:2441/527ht1a96e837pq2dubgo2953q is not listed on IDEAS
    14. Estelle Herbaut & Koen Geven, 2019. "What Works to Reduce Inequalities in Higher Education? A Systematic Review of the (Quasi-)Experimental Literature on Outreach and Financial Aid," Working Papers hal-03456943, HAL.
    15. José Montalbán, 2019. "Countering moral hazard in higher education: The role of performance incentives in need-based grants," PSE Working Papers halshs-02160365, HAL.
    16. Lauren Schudde & Judith Scott-Clayton, 2016. "Pell Grants as Performance-Based Scholarships? An Examination of Satisfactory Academic Progress Requirements in the Nation’s Largest Need-Based Aid Program," Research in Higher Education, Springer;Association for Institutional Research, vol. 57(8), pages 943-967, December.
    17. Aguirre, Josefa, 2021. "Long-term effects of grants and loans for vocational education," Journal of Public Economics, Elsevier, vol. 204(C).
    18. José Montalbán, 2019. "Countering moral hazard in higher education: The role of performance incentives in need-based grants," Working Papers halshs-02160365, HAL.
    19. Drew M. Anderson & Katharine M. Broton & Sara Goldrick‐Rab & Robert Kelchen, 2020. "Experimental Evidence on the Impacts of Need‐Based Financial Aid: Longitudinal Assessment of the Wisconsin Scholars Grant," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 39(3), pages 720-739, June.
    20. Michael S. Kofoed, 2022. "Pell Grants and Labor Supply: Evidence from a Regression Kink," Upjohn Working Papers 22-363, W.E. Upjohn Institute for Employment Research.
    21. 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.
    22. 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.

    More about this item

    Keywords

    Financial aid; Community colleges; Inequality; Regression discontinuity;
    All these keywords.

    JEL classification:

    • I22 - Health, Education, and Welfare - - Education - - - Educational Finance; Financial Aid
    • I24 - Health, Education, and Welfare - - Education - - - Education and Inequality
    • I28 - Health, Education, and Welfare - - Education - - - Government Policy

    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:eee:pubeco:v:190:y:2020:i:c:s0047272720301171. 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: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/505578 .

    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.