Who merits financial aid? Massachusetts? Adams scholarship
The majority of states in the U.S. now fund merit-based financial aid programs, the effects of which depend on how strongly students react to changes in college costs. I estimate such reactions using quasi-experimental aspects of a recent Massachusetts merit scholarship program intended to attract talented students to the state public colleges. This paper is the first to document heterogeneity in price sensitivity among students of varying academic abilities. My primary result is that, in spite of its small monetary value, the scholarship induced 6% of winners to choose four-year public colleges over four-year private colleges, the average of a large effect on the lowest ability winners and no effect on the highest ability winners. The bulk of funds nonetheless flowed to students who would have attended public colleges anyway, and the scholarship had no effect on the overall college attendance rate, which for winners was already above 90%. These findings have implications for the design of future government-sponsored financial aid programs.
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