IDEAS home Printed from
   My bibliography  Save this paper

Financial Aid Policy: Lessons from Research


  • Susan Dynarski
  • Judith Scott-Clayton


In the nearly fifty years since the adoption of the Higher Education Act of 1965, financial aid programs have grown in scale, expanded in scope, and multiplied in form. As a result, financial aid has become the norm among college enrollees. The increasing size and complexity of the nation's student aid system has generated questions about effectiveness, heightened confusion among students and parents, and raised concerns about how program rules may interact. In this article, we review what is known and what is not known about how well various student aid programs work. We find evidence that lowering costs can improve college access and completion, but this general rule is not without exception. For example, the complexity of program eligibility and delivery appears to moderate the impact of aid, and for students who have already decided to enroll, grants that link financial aid to academic achievement appear to boost college outcomes more than do grants with no strings attached. Future research is likely to focus on several issues: the importance of program design and delivery, whether there are unanticipated interactions between programs, and to what extent program effects vary across different types of students.

Suggested Citation

  • Susan Dynarski & Judith Scott-Clayton, 2013. "Financial Aid Policy: Lessons from Research," NBER Working Papers 18710, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:18710
    Note: ED

    Download full text from publisher

    File URL:
    Download Restriction: no

    References listed on IDEAS

    1. Merton, Robert C., 1971. "Optimum consumption and portfolio rules in a continuous-time model," Journal of Economic Theory, Elsevier, vol. 3(4), pages 373-413, December.
    2. George M. Constantinides, 2005. "Capital Market Equilibrium with Transaction Costs," World Scientific Book Chapters,in: Theory Of Valuation, chapter 7, pages 207-227 World Scientific Publishing Co. Pte. Ltd..
    3. David B. Brown & James E. Smith, 2011. "Dynamic Portfolio Optimization with Transaction Costs: Heuristics and Dual Bounds," Management Science, INFORMS, vol. 57(10), pages 1752-1770, October.
    4. George M. Constantinides, 1976. "Note--Optimal Portfolio Revision with Proportional Transaction Costs: Extension to Hara Utility Functions and Exogenous Deterministic Income," Management Science, INFORMS, vol. 22(8), pages 921-923, April.
    5. Zabel, Edward, 1973. "Consumer Choice, Portfolio Decisions, and Transaction Costs," Econometrica, Econometric Society, vol. 41(2), pages 321-335, March.
    6. Jules H. Kamin, 1975. "Optimal Portfolio Revision with a Proportional Transaction Cost," Management Science, INFORMS, vol. 21(11), pages 1263-1271, July.
    7. George M. Constantinides, 1979. "Multiperiod Consumption and Investment Behavior with Convex Transactions Costs," Management Science, INFORMS, vol. 25(11), pages 1127-1137, November.
    8. Kumar Muthuraman & Haining Zha, 2008. "Simulation-Based Portfolio Optimization For Large Portfolios With Transaction Costs," Mathematical Finance, Wiley Blackwell, vol. 18(1), pages 115-134.
    9. Duffie, Darrell & Sun, Tong-sheng, 1990. "Transactions costs and portfolio choice in a discrete-continuous-time setting," Journal of Economic Dynamics and Control, Elsevier, vol. 14(1), pages 35-51, February.
    10. Kumar Muthuraman & Sunil Kumar, 2006. "Multidimensional Portfolio Optimization With Proportional Transaction Costs," Mathematical Finance, Wiley Blackwell, vol. 16(2), pages 301-335.
    11. Merton, Robert C, 1969. "Lifetime Portfolio Selection under Uncertainty: The Continuous-Time Case," The Review of Economics and Statistics, MIT Press, vol. 51(3), pages 247-257, August.
    12. Hong Liu, 2004. "Optimal Consumption and Investment with Transaction Costs and Multiple Risky Assets," Journal of Finance, American Finance Association, vol. 59(1), pages 289-338, February.
    13. Abrams, Robert A & Karmarkar, Uday S, 1980. "Optimal Multiperiod Investment-Consumption Policies," Econometrica, Econometric Society, vol. 48(2), pages 333-353, March.
    14. Yongyang Cai & Kenneth Judd, 2015. "Dynamic programming with Hermite approximation," Mathematical Methods of Operations Research, Springer;Gesellschaft für Operations Research (GOR);Nederlands Genootschap voor Besliskunde (NGB), vol. 81(3), pages 245-267, June.
    15. Yongyang Cai & Kenneth L. Judd, 2010. "Stable and Efficient Computational Methods for Dynamic Programming," Journal of the European Economic Association, MIT Press, vol. 8(2-3), pages 626-634, 04-05.
    16. Karel Janeček & Steven Shreve, 2004. "Asymptotic analysis for optimal investment and consumption with transaction costs," Finance and Stochastics, Springer, vol. 8(2), pages 181-206, May.
    17. Gerard Gennotte & Alan Jung, 1994. "Investment Strategies under Transaction Costs: The Finite Horizon Case," Management Science, INFORMS, vol. 40(3), pages 385-404, March.
    Full references (including those not matched with items on IDEAS)


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

    Cited by:

    1. Elena Mattana & Juanna Joensen, 2016. "Student Aid, Academic Achievement, and Labor Market Behavior," 2016 Meeting Papers 1102, Society for Economic Dynamics.
    2. Ricardo Reis, 2013. "Central Bank Design," Journal of Economic Perspectives, American Economic Association, vol. 27(4), pages 17-44, Fall.
    3. Bleemer, Zachary & Zafar, Basit, 2015. "Intended college attendance: evidence from an experiment on college returns and costs," Staff Reports 739, Federal Reserve Bank of New York.
    4. Darolia, Rajeev, 2016. "An Experiment on Information Use in College Student Loan Decisions," Working Papers 16-18, Federal Reserve Bank of Philadelphia.
    5. Elena Mattana & Juanna Joensen, 2014. "Student Aid, Academic Achievement, and Labor Market Behavior: Grants or Loans?," 2014 Meeting Papers 707, Society for Economic Dynamics.
    6. Barr, Andrew & Turner, Sarah, 2015. "Out of work and into school: Labor market policies and college enrollment during the Great Recession," Journal of Public Economics, Elsevier, vol. 124(C), pages 63-73.
    7. Nicholas W. Hillman & Erica Lee Orians, 2013. "Financial Aid's Role in Meeting State College Completion Goals," Education Finance and Policy, MIT Press, vol. 8(3), pages 349-363, July.
    8. Clotfelter, Charles T. & Hemelt, Steven W. & Ladd, Helen F., 2016. "Multifaceted Aid for Low-Income Students and College Outcomes: Evidence from North Carolina," IZA Discussion Papers 9888, Institute for the Study of Labor (IZA).
    9. 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.
    10. Ellis, Jimmy R. & Gershenson, Seth, 2016. "LATE for the Meeting: Gender, Peer Advising, and College Success," IZA Discussion Papers 9956, Institute for the Study of Labor (IZA).
    11. Justine Hastings & Christopher A. Neilson & Seth D. Zimmerman, 2015. "The Effects of Earnings Disclosure on College Enrollment Decisions," NBER Working Papers 21300, National Bureau of Economic Research, Inc.
    12. Vergolini, Loris & Zanini, Nadir, 2015. "Away, but not too far from home. The effects of financial aid on university enrolment decisions," Economics of Education Review, Elsevier, vol. 49(C), pages 91-109.
    13. Darolia, Rajeev, 2013. "Student Loan Repayment and College Accountability," Payment Cards Center Discussion Paper 13-5, Federal Reserve Bank of Philadelphia.
    14. Loris Vergolini & Nadir Zanini & Nicola Bazoli, 2014. "Liquidity Constraints and University Participation in Times of Recession. Evidence from a Small-scale Programme," FBK-IRVAPP Working Papers 2014-11, Research Institute for the Evaluation of Public Policies (IRVAPP), Bruno Kessler Foundation.
    15. repec:eee:pubeco:v:155:y:2017:i:c:p:164-178 is not listed on IDEAS
    16. Brad J. Hershbein & Kevin Hollenbeck, 2013. "The Distribution of College Graduate Debt, 1990 to 2008: A Decomposition Approach," Upjohn Working Papers and Journal Articles 14-204, W.E. Upjohn Institute for Employment Research.
    17. Bleemer, Zachary & Zafar, Basit, 2014. "Information heterogeneity and intended college enrollment," Staff Reports 685, Federal Reserve Bank of New York.
    18. Rajeev Darolia, 2015. "Messengers of Bad News or Bad Apples? Student Debt and College Accountability," Education Finance and Policy, MIT Press, vol. 10(2), pages 277-299, March.
    19. 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.
    20. Elsayed, Mahmoud A.A., 2016. "The Impact of Education Tax Benefits on College Completion," Economics of Education Review, Elsevier, vol. 53(C), pages 16-30.
    21. Andrew Barr, 2015. "From the Battlefield to the Schoolyard: The Short- Term Impact of the Post- 9/11 GI Bill," Journal of Human Resources, University of Wisconsin Press, vol. 50(3), pages 580-613.
    22. Rodney J. Andrews & Scott A. Imberman & Michael F. Lovenheim, 2016. "Recruiting and Supporting Low-Income, High-Achieving Students at Flagship Universities," NBER Working Papers 22260, National Bureau of Economic Research, Inc.
    23. Susan Dynarski & Judith Scott-Clayton, 2016. "Tax Benefits for College Attendance," NBER Working Papers 22127, National Bureau of Economic Research, Inc.
    24. Charles T. Clotfelter & Steven W. Hemelt & Helen F. Ladd, 2016. "Multifaceted Aid for Low-Income Students and College Outcomes: Evidence from North Carolina," NBER Working Papers 22217, National Bureau of Economic Research, Inc.

    More about this item

    JEL classification:

    • I22 - Health, Education, and Welfare - - Education - - - Educational Finance; Financial Aid
    • I23 - Health, Education, and Welfare - - Education - - - Higher Education; Research Institutions
    • I28 - Health, Education, and Welfare - - Education - - - Government Policy

    NEP fields

    This paper has been announced in the following NEP Reports:


    Access and download statistics


    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:nbr:nberwo:18710. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (). General contact details of provider: .

    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.

    We have no references for this item. You can help adding them by using 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.

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

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.