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Do College Tuition Subsidies Boost Spending and Reduce Debt? Impacts by Income and Race

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Abstract

In an October post, we showed the effect of college tuition subsidies in the form of merit-based financial aid on educational and student debt outcomes, documenting a large decline in student debt for those eligible for merit aid. Additionally, we reported striking differences in these outcomes by demographics, as proxied by neighborhood race and income. In this follow-up post, we examine whether and how this effect passes through to other debt and consumption outcomes, namely those related to autos, homes, and credit cards. We find that access to merit aid leads to an immediate but temporary increase in eligible individuals’ consumption in these categories. The increase is followed by a decline in consumption and a reduction in total debt of these types in the longer term. Importantly, there are marked differences in these consumption and debt patterns across income and race groups.

Suggested Citation

  • Rajashri Chakrabarti & William Nober & Wilbert Van der Klaauw, 2020. "Do College Tuition Subsidies Boost Spending and Reduce Debt? Impacts by Income and Race," Liberty Street Economics 20200708d, Federal Reserve Bank of New York.
    • Handle: RePEc:fip:fednls:88328
    Note: Heterogeneity Series III: Credit Market Outcomes
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    Cited by:

    1. Brad J. Hershbein & Isabel McMullen & Brian Pittelko & Bridget Timmeney, 2021. "Beyond degrees: Longer term outcomes of the Kalamazoo Promise," Upjohn Working Papers 21-350, W.E. Upjohn Institute for Employment Research.

    More about this item

    Keywords

    tuition; subsidy; merit aid; debt; diversity;
    All these keywords.

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • Q12 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Micro Analysis of Farm Firms, Farm Households, and Farm Input Markets

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