Financial Aid to Low-Income Students
Introduction
Angrist, Autor, and Pallais (2022) explore the effect of financial aid offered to college applicants on degree completion. The paper examines awards granted by the Susan Thompson Buffet Foundation (SBTF), which offers need- and merit-based aid to Nebraska-resident high school seniors and graduates who plan to attend any public two- or four-year college in Nebraska. The authors worked with STBF to randomly assign aid to students from low-income, minority, and first-generation college applications. The paper finds that award recipients were more likely to complete their degree relative to similar students who were not selected to receive aid: 6-year degree completion for the STBF recipients was 8.1 percentage points higher than for the non-recipients. While STBF is a privately funded scholarship award, the paper proposes a thought experiment in which the same scholarship is offered through a public entity to estimate the MVPF of financial aid to college applicants.
MVPF = 1.8
Net Cost
The only cost to the government is the one-time cash transfer to beneficiaries, which is estimated to be $32,250. The paper estimates that the present value of future pre-tax earnings for recipients is estimated to $21,150. Assuming a marginal tax rate of 20 percent suggests an additional $4,230 in income tax revenue. As a result, the per-beneficiary net cost to the government is $32,250-$4,230= $28,020.
Willingness to Pay
The average cash transfer to the SBTF beneficiaries is $32,250. The present value of future pre-tax earnings for recipients is estimated to $21,150. Assuming a marginal tax rate of 20 percent yields a post-tax earnings estimate of $16,960. Each recipient’s total willingness to pay is the sum of these two measures: $32,250+$16,920= $49,170.
MVPF Summary
The estimated MVPF of the financial aid award is therefore $49,170/$28,020=1.75.
The paper states that this is likely a conservative estimate, since it omits non-pecuniary benefits and ignores the economic returns of reduced college debt.
References
Angrist, Joshua, David Autor, and Amanda Pallais (2022), “Marginal Effects of Merit Aid for Low-Income Students”, The Quarterly Journal of Economics 137(2), pp. 1039–1090. https://doi.org/10.1093/qje/qjab050
Policy Features
- Category
- Education
- Sub-Category
- College Child
- Beneficiary Type(s)
- College enrollees
- Country of Implementation
- United States
- Empirical Method
- RCT
- Research Type
- Primary
- Peer Reviewed
- Yes
- MVPF Publication Link
- doi.org/10.1093/qje/qjab050