Cal Grant, Income Threshold

Hendren and Sprung-Keyser (2020) calculate net costs by starting with $8,115 in initial program costs. During the late 1990s, when the students analyzed by Bettinger et al. (2019) were enrolled, the grant was worth between $1,500 and $3,500 for students enrolled in four-year public colleges and between $9,000 and $9,700 for students enrolled at private colleges.

Next, Hendren and Sprung-Keyser (2020) account for the additional costs due to increased educational attainment on the part of those eligible for Cal Grant. They use estimates from Bettinger et al. 2019 on the number of additional bachelor’s degrees received by Cal Grant recipients and translate that into a fixed number of years of additional schooling, which in their baseline they assume to be two. Hendren and Sprung-Keyser (2020) also use estimates from Bettinger et al. (2019) on the number of individuals who switch between four-year public institutions and two-year public institutions. In each case, they follow the approach of Zimmerman (2014), and calculate government costs per full time enrollee based on data from the Delta Cost Project. This results in additional government costs of $148. Hendren and Sprung-Keyser (2020) also account for the increase in costs as those who would have enrolled in the absence of the Cal Grant are induced to attend less expensive schools. This subtracts $191 from total costs. Next, they account for the changes in taxes paid and transfers received based on the earnings gains calculated in the willingness to pay section. That results in a fiscal externality of $3,654 in additional costs to the government and a total net cost of $11,726. This net cost estimate has a 95% confidence interval ranging from $4,739 to $18,626.

Combining these estimates, Hendren and Sprung-Keyser (2020) get an MVPF of -0.69 with a 95% confidence interval of [-2.36,7.41].

Hendren and Sprung-Keyser (2020) also consider a specification where the Cal Grant is valued at the cost of the transfer rather than based on the change in long-term earnings. This conservative willingness to pay method ignores any effect from increases in earnings. Instead, it applies the envelope theorem to those induced to get more schooling and assumes they are indifferent to the expenditure. All those who do not change their behavior as a result of the scholarship value it as a dollar-for-dollar transfer. The resulting MVPF for this alternate specification is 0.66 with a 95% confidence interval of [0.46,1.66].