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Merit aid, student mobility, and the role of college selectivity

  • Rajashri Chakrabarti
  • Joydeep Roy

In this paper, we investigate the role of college selectivity in mobility decisions (both in-state and out-of-state) of freshmen students following Georgia’s HOPE scholarship program. How did HOPE affect the selectivity of colleges attended by Georgia’s freshmen students? Did it induce Georgia’s freshmen students who would have otherwise attended more selective out-of-state colleges to instead attend less selective in-state ones? Or was there movement to more selective ones, both in-state and out-of-state? Using student residency and enrollment data from IPEDS and selectivity data from Barron’s and Peterson’s, we find that in the aftermath of HOPE, Georgia freshmen attended relatively more selective colleges overall. Disaggregating further, we find that Georgia freshmen attending in-state colleges attended more selective ones. Georgia freshmen attending out-of-state colleges were also more likely to attend more selective colleges, most likely due to an increase in the reservation price to go to out-of-state colleges following HOPE. Our results are robust to a variety of sensitivity checks and have important policy implications. In particular, Peltzman had observed in his classic 1973 paper that in-kind subsidies can induce individuals to invest in less quality-adjusted human capital than they might otherwise. The fact that Georgia freshmen attended relatively more selective colleges in the post-HOPE period allays, to some extent, the concern that state merit aid programs can adversely affect long-term outcomes and human capital formation.

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Paper provided by Federal Reserve Bank of New York in its series Staff Reports with number 641.

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Date of creation: 2013
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Handle: RePEc:fip:fednsr:641
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  1. Griffith, Amanda L. & Rothstein, Donna S., 2009. "Can't get there from here: The decision to apply to a selective college," Economics of Education Review, Elsevier, vol. 28(5), pages 620-628, October.
  2. 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.
  3. Christopher Avery & Caroline Minter Hoxby, 2004. "Do and Should Financial Aid Packages Affect Students' College Choices?," NBER Chapters, in: College Choices: The Economics of Where to Go, When to Go, and How to Pay For It, pages 239-302 National Bureau of Economic Research, Inc.
  4. Sarah R. Cohodes & Joshua S. Goodman, 2014. "Merit Aid, College Quality, and College Completion: Massachusetts' Adams Scholarship as an In-Kind Subsidy," American Economic Journal: Applied Economics, American Economic Association, vol. 6(4), pages 251-85, October.
  5. Susan Dynarski, 2005. "Building the Stock of College-Educated Labor," NBER Working Papers 11604, National Bureau of Economic Research, Inc.
  6. Dan A. Black & Jeffrey A. Smith, 2006. "Estimating the Returns to College Quality with Multiple Proxies for Quality," Journal of Labor Economics, University of Chicago Press, vol. 24(3), pages 701-728, July.
  7. Joshua Goodman, 2007. "Who merits financial aid? Massachusetts? Adams scholarship," Discussion Papers 0607-13, Columbia University, Department of Economics.
  8. Long, Mark C., 2008. "College quality and early adult outcomes," Economics of Education Review, Elsevier, vol. 27(5), pages 588-602, October.
  9. Caroline M. Hoxby, 2009. "The Changing Selectivity of American Colleges," NBER Working Papers 15446, National Bureau of Economic Research, Inc.
  10. Dynarski, Susan, 2000. "Hope for Whom? Financial Aid for the Middle Class and Its Impact on College Attendance," National Tax Journal, National Tax Association, vol. 53(n. 3), pages 629-62, September.
  11. Long, Mark C., 2010. "Changes in the returns to education and college quality," Economics of Education Review, Elsevier, vol. 29(3), pages 338-347, June.
  12. Christopher M. Cornwell & Kyung Hee Lee & David B. Mustard, 2005. "Student Responses to Merit Scholarship Retention Rules," Journal of Human Resources, University of Wisconsin Press, vol. 40(4), pages 895-917.
  13. 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.
  14. Maria D. Fitzpatrick & Damon Jones, 2012. "Higher Education, Merit-Based Scholarships and Post-Baccalaureate Migration," NBER Working Papers 18530, National Bureau of Economic Research, Inc.
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