College Financial Aid in Colombia (Income Distribution Cut-Off)
Introduction
In 2014, the Colombian government introduced Ser Pilo Paga (SPP), a financial aid program for low-income high-achieving high school students. Eligible students received full tuition loans at a set of government-certified high-quality colleges. Eligibility is determined based on two strict cutoffs: 1) Students need to be in the top 10 percent of scorers on the national high school exit exam. 2) Students need to be from households with below median wealth. Students who complete their degree have their SPP loans completely forgiven.
Londoño-Vélez et al. (2025) studies the impact of SPP on college attendance as well as on degree completion, performance on the standardized college graduation exam, and post-college earnings. The paper utilizes a regression discontinuity design to compare eligible students to a control group of students who met one cutoff (test score or income) and narrowly missed the other. The paper finds that at the poverty cutoff the financial aid program increases high-achieving students’ likelihood of attending any college by 5 percentage points and their likelihood of attending a high-quality college by 36 percentage points. The program also improves degree attainment, particularly from high-quality institutions, and leads to higher earnings. Moreover, it increases the chances that low-income students reach the top 25% and even the top 1% of the earnings distribution for their age group.
The paper estimates the MVPF for expanding SPP to students who meet the current test-score cutoff but fall right below the poverty cutoff. The paper separately estimates the MVPF for expanding SPP to students who meet the poverty cutoff but fall right below the test-score cutoff.
MVPF = 1.9
Net Cost
The net cost to the government is estimated using two components: the increased educational costs and increased income tax revenue. The paper estimates that the government spends an additional 48.2 million pesos on education for an SPP eligible student compared to a student who is eligible on the test-score cutoff but falls right below the poverty cutoff.
The paper estimates that the earnings gains for students at the poverty cutoff are 53.1 million pesos. Assuming a tax-rate of 19%, government revenue increases by 10.1 million pesos.
Thus, the net government cost is 48.2 – 10.1 = 38.1 million pesos (US$9,411).
Willingness to Pay
The paper estimates the willingness-to-pay as the earnings gains at the poverty cutoff plus the value of the transfer for the fraction of individuals who would have attended a high-quality college, even without SPP.
The paper estimates that the earnings gains at the poverty cutoff are 53.1 million pesos. Assuming a tax-rate of 19%, the post-tax earnings gains are 43.0 million pesos.
The average transfer at the poverty cutoff is 86.2 million pesos. The paper finds that 35.9% of people in the control group attend a high-quality college. The paper assumes then that 35.9% of people who receive SPP would have attended a high-quality college even without the financial aid and therefore value the transfer they receive from SPP. This assumes that these SPP recipients all fully value the transfer (in other words, it does not take into account the extent to which people who would have attended public high-quality college are induced to attend private high-quality college with SPP receipt.)
The total willingness to pay is 43.0 + .359(86.2) = 73.9 million pesos (US$18,252).
MVPF Summary
The net government cost is 38.1 million pesos and the willingness to pay is 73.9 million pesos which results in an MVPF for expanding SPP to students at the poverty cutoff of 1.9.
References
Londoño-Vélez, Juliana, Catherine Rodriguez, Fabio Sanchez, Luis E. Álvarez-Arango (2025). “Financial Aid and Upward Mobility: Evidence from Colombia’s Ser Pilo Paga.” NBER Working Paper 31737. http://www.nber.org/papers/w31737.
Policy Features
- Category
- Education
- Sub-Category
- College Child
- Beneficiary Type(s)
- College enrollees
- Average Age
- 18
- Country of Implementation
- Colombia
- Year of Implementation
- 2014
- Empirical Method
- Regression Discontinuity
- Research Type
- Primary
- Peer Reviewed
- No
- MVPF Publication Link
- www.nber.org/papers/w31737