Aid Policy: Lessons from Research

Aid
Policy:
Lessons
from
Research
Susan
Dynarski,
University
of
Michigan
Judith
Sco@-‐Clayton,
Columbia
University

Outline
1. Higher
EducaIon
Structure
in
US
2. SIcker
Price
vs.
Net
Price
3. Evidence
on
the
Effect
of
Price
2

Provision
of
Postsecondary
EducaIon
in
US
• Public
Sector:
80%
of
undergrads
• Private,
non-‐profit:
10%
• Private,
for-‐profit:
10%

Provision
of
Postsecondary
EducaIon
in
US
• Public:
80%
of
undergrads
– UniversiIes,
colleges
• Four-‐year,
BA
– Community
colleges
• Two-‐year,
AA
• Private,
non-‐profit:
10%
–
UniversiIes,
colleges
• Private,
for-‐profit:
10%

Funding
of
Postsecondary
InsItuIons
in
US
• Public
Sector
– States
give
$
to
schools
– Schools
charge
low
tuiIon
• Private,
non-‐profit
–
Some
have
large
endowments
– Schools
charge
high
tuiIon
• Private,
for-‐profit
– Schools
charge
high
tuiIon

6
$30,000
$25,000
$20,000
$15,000
$10,000
$5,000
$0
InflaIon-‐Adjusted
TuiIon
and
Fees
Private
Nonprofit
Four-‐Year
Public
Four-‐Year
Public
Two-‐Year
(2011$)
1981-‐82
1986-‐87
1991-‐92
1996-‐97
2001-‐02
2006-‐07
2011-‐12
SOURCE:
The
College
Board,
Trends
in
College
Pricing
2012.

Public
Prices
Rise
as
State
AppropriaIons
Fall
SOURCE:
The
College
Board,
Trends
in
College
Pricing
2012,
Figure
12A.

8
Average
State
AppropriaIons
for
Higher
EducaIon
per
$1,000
in
Personal
Income
SOURCE:
The
College
Board,
Trends
in
College
Pricing
2012,
Figure
13A.

SIcker
Price
vs.
Net
Price
9

Aid
for
College
• Federal
government
provides
over
$180
billion
in
support
for
over
20
million
students
annually
– $80
billion
is
non-‐repayable
(i.e
not
loans)
– 9
million
Pell
Grants
($35
billion
total)
– 18
million
tax
credits
($19
billion
total)
• State
governments
provide
aid
to
students
• Colleges
provide
aid
to
students

Net
Price
≠
SIcker
Price
SOURCE:
Based
on
data
in
The
College
Board,
Trends
in
College
Pricing,
mulIple
years.
14

Sources:
NPR
Planet
Money
graphic
based
on
data
from
College
Board,
Trends
in
College
Pricing

EsImaIng
the
Effect
of
Price
on
Student
Decisions

EsImaIon
Issues
• We
would
like
to
know
how
the
price
of
postsecondary
educaIon
affects
schooling
decisions
• What
is
the
effect
of
a
$1000
change
in…
– TuiIon
price?
– Aid?
• Relevant
for
both
policy
and
research

How
does
the
aid
affect
schooling
decisions?

Why
does
aid
eligibility
vary?
• Need-‐based
aid
• Merit
aid
• AthleIc
scholarships

Causal
InterpretaIon?
• Unobserved
variables
are
correlated
with
aid
and
schooling
outcomes
à
omi@ed-‐variables
bias
• SoluIon:
randomized
trial
or
natural
experiment

Quasi-‐Experimental
Analysis:
Social
Security
Student
Benefits
• Paid
sIpends
to
college-‐going
children
of
deceased,
disabled
and
reIred
Social
Security
beneficiaries
– Established
1965
• Scope
of
Program
(1981)
– $3.3
billion
– 850,000
students
– 1
in
10
college
students
– 2nd
largest
federal
student
grant
program
• Generosity
of
Benefits
– averaged
$3000/year
(nominal)
• average
public
university
tuiIon:
$1000
• average
private
university
tuiIon:
$5000

Social
Security
Student
Benefit
Program
• Program
Eliminated
1981
• Students
not
in
college
as
of
May,
1982
ineligible
for
benefits
• Spending
dropped
from
$3.3
billion
to
$0.3
billion
in
two
years
• One
of
the
largest
policy
innovaIons,
ever,
in
student
aid

Father Not
Deceased
=control
group
Father
Deceased
=eligible
group
Difference
High School Senior 1979-81
=before
YC0 YT0 YT0 - YC0
High School Senior 1982-83
=after
YC1 YT1 YT1 - YC1
Difference-in-Difference (YT1 - YC1) –
(YT0 - YC0)
Difference-‐in-‐Differences

InterpreIng
Size
of
Effects
• Eligibility
for
program
increased
– college
entry
22
percentage
points
– completed
schooling
0.68
years
• Offer
of
$1000
in
student
benefits
increases
– college
entry
by
3.6
percentage
points
– completed
schooling
by
0.16
years

Lessons
from
Evidence
on
the
Effect
of
Price
on
Student
Decisions

30
Lesson
1:
Money
ma@ers
for
college
entry
• Several quasi-experimental studies find that
when prices decreases, enrollment increases
• Roughly 3-5 percentage point increase in
enrollment per $1,000 in grant aid
• Evidence of effects of grant aid on completion is
less conclusive

31
Lesson
2:
Complexity
undermines
effecIveness
• Funding system in US is extremely complicated
– Huge variation in tuition prices
– Dozens of aid programs
• Widespread misinformation about net price of college
– Overestimates of tuition prices
– Underestimates of aid
• Randomized trial: complete federal aid application for
potential students
– Large increases in college attendance, persistence
• Efforts underway to simplify aid programs

36
Lesson
3:
IncenIves
increase
effecIveness
of
aid
• Aid can be unconditional or conditional on performance
• Evidence on conditional aid programs indicates they
increase college persistence and completion
• The conditions may signal appropriate levels of effort
– Number of courses to take
– Acceptable grades

37
Lesson
4:
Evidence
on
loans
is
limited
• Shockingly limited evidence on the effects of
loans given their prominence in college finance
• Students clearly don’t like them and they don’t
appear to be as effective as grants
• But are they cost-effective compared to grants?
• So much attention has been focused on interest
rates, but other features of loan repayment may
be even more important

Other
findings
• Little evidence that financial aid drives up tuition
prices (the “Bennett Hypothesis”), except for in
the for-profit sector
• Some evidence that Pell grants “crowd out”
institutional aid at selective private institutions,
but not at the public institutions enrolling majority
of recipients
38

Aid Policy: Lessons from Research

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