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Student Aid, Academic Achievement, and Labor Market Behavior

Author

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  • Elena Mattana

    (University of Chicago)

  • Juanna Joensen

    (University of Chicago)

Abstract

Does it matter whether study aid is provided as grants or loans? We provide a framework for quantifying the impacts of financial aid on student debt, academic capital, and labor market outcomes. We specify and estimate a dynamic discrete choice model of simultaneous education, work, and student loan take-up decisions. We use administrative panel data and exploit exogenous variation from the 2001 Swedish Study Aid reform for identification of the model parameters. This enables ex-ante evaluation of various changes to financial aid schemes. We find that additional years of aid and more generous means testing on student income substantially reduce dropout rates and increase graduation rates with more advanced degrees, but at the cost of students staying enrolled longer and accumulating more debt. Moving from an income-contingent to an annuity-based loan repayment scheme decreases student debt accumulation and improves the effectiveness of academic capital accumulation. If study aid consists mostly of grants, a reduction in loans and increase in grants reduces graduation rates. However, once loans are larger than grants, further changes have little impact on dropout and graduation rates. This means that in some cases, the government can decide who bears the college cost without affecting human capital accumulation.

Suggested Citation

  • Elena Mattana & Juanna Joensen, 2016. "Student Aid, Academic Achievement, and Labor Market Behavior," 2016 Meeting Papers 1102, Society for Economic Dynamics.
  • Handle: RePEc:red:sed016:1102
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    3. Sunha Myong & Jungho Lee, 2019. "Self-financing, Parental Transfer, and College Education," 2019 Meeting Papers 106, Society for Economic Dynamics.
    4. De Groote, Olivier, 2019. "Dynamic Effort Choice in High School: Costs and Benefits of an Academic Track," TSE Working Papers 19-1002, Toulouse School of Economics (TSE), revised Jun 2023.
    5. Declercq, Koen & Verboven, Frank, 2018. "Enrollment and degree completion in higher education without admission standards," Economics of Education Review, Elsevier, vol. 66(C), pages 223-244.
    6. Chengfeng Zhang & Qiao Wu & Huijuan Wang & Xia Luo & Ning Wei & BingYu Pan & Jiajun Tong, 2021. "Factors Affecting Campus Loans in Western China," SAGE Open, , vol. 11(2), pages 21582440211, June.

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    More about this item

    JEL classification:

    • D90 - Microeconomics - - Micro-Based Behavioral Economics - - - General
    • H52 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Education
    • I21 - Health, Education, and Welfare - - Education - - - Analysis of Education
    • I22 - Health, Education, and Welfare - - Education - - - Educational Finance; Financial Aid
    • I28 - Health, Education, and Welfare - - Education - - - Government Policy
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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