aid policy: lessons from research
DESCRIPTION
Presentation "Aid Policy: Lessons from Research" by Susan Dynarski, University of Michigan and Judith Scott‐Clayton, Columbia UniversityTRANSCRIPT
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
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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
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$0
$5,000
$10,000
$15,000
$20,000
$25,000
$30,000
1981-‐82 1986-‐87 1991-‐92 1996-‐97 2001-‐02 2006-‐07 2011-‐12
Private Nonprofit Four-‐Year
Public Four-‐Year
Public Two-‐Year
InflaIon-‐Adjusted TuiIon and Fees (2011$)
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.
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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
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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
14 SOURCE: Based on data in The College Board, Trends in College Pricing, mulIple years.
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
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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
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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
Aid ApplicaIon
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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
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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
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