The Georgia HOPE program provides is a lottery-funded state program that provides higher educational funding through merit-based scholarships. The scholarships cover tuition, fees, and book-related expenses for public colleges and provides a fixed payment subsidy for private colleges. The value of the scholarship was initially set at $500 in 1993, before increased to $1,000 in 1994, $1,500 in 1995, and $3,000 in 1996. All Georgia high school students are eligible if they graduate with at least a B average.
Hendren and Sprung-Keyser (2020) construct an MVPF of these scholarships using estimates from Cornwell et al. (2006). Cornwell et al. (2006) look at the impact of the Georgia HOPE scholarship on first-time freshman enrollment by using a difference-in-difference design, comparing against control group states that do not implement the state program. They look at college enrollment from 1993, when the scholarship began, until 1997. They estimate a 8.6 percent increase in enrollment at four-year public colleges, a 13.2 percent increase in enrollment for four-year private colleges, and a 4.5 percent decrease in public community college enrollment. Hendren and Sprung-Keyser (2020) translate these estimates into their implied MVPF by forecasting the earnings impacts over the life cycle using estimates of the return to college from Zimmerman (2014)
MVPF = 4.0
Hendren and Sprung-Keyser (2020) estimate the direct program costs to be $1849 by taking the annual average of aid disbursed per recipient for the 1993-1999 reported in Cornwell et al. (2006). Hendren and Sprung-Keyser (2020) then subtract the behavioral response cost of increased educational attainment, net of private tuition payments, under the assumption that grant recipients did not switch between different forms of postsecondary education over the course of the program ($245). This gives us a program cost of $1,604. Hendren and Sprung-Keyser (2020) calculate government costs per full time enrollee based on data from the Delta Cost Project. They also account for the changes in taxes paid and transfers received based on the earnings gain calculated in the willingness to pay section. This results in a fiscal externality of $1038, and, when combined with the educational expenditures of $877 from enrollment, a total net cost of $1443.
To calculate the willingness to pay, Hendren and Sprung-Keyser (2020) transform the enrollment effects into additional years of schooling and then use estimates from Zimmerman (2014) to estimate the impact on lifetime earnings. Hendren and Sprung-Keyser (2020) use the results from Zimmerman to estimate a decline in earnings in years 1-7 after enrollment and then an increase in earnings over the rest of the lifecycle. Hendren and Sprung-Keyser (2020) calculate the fiscal externality using a tax rate of 18.9% over the bulk of the lifecycle. This figure comes from their calculation of the effective marginal tax rates based on estimates from the Congressional Budget Office. The projected earnings gains provide the willingness to pay for all individuals induced to change their behavior and receive more education as a result of the grants. Hendren and Sprung-Keyser (2020) calculate total willingness to pay by summing those earnings gains with the simple value of the transfer for the fraction of individuals not induced to change their behavior across the enrollment effects for the three types of postsecondary education. Hendren and Sprung-Keyser (2020) calculate the effect on earnings per HOPE recipient. The resulting willingness to pay is $5766.
Combining these estimates, Hendren and Sprung-Keyser (2020) obtain an MVPF of 4.0. To obtain the confidence intervals, they bootstrap the enrollment, earning and tax revenue outcomes. This leads to a 95% confidence interval of [0.37,20.63]
Hendren and Sprung-Keyser (2020) also consider a specification where the scholarship is valued at the cost of the transfer rather than based on the change in long-term earnings. This conservative method for calculating willingness to pay 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 1.11 with a 95% confidence interval of [ 0.63,3.28 ].
Cornwell, C., D. Mustard and D. Sridhar (2006). “The Enrollment Effects of Merit-Based Financial Aid: Evidence from Georgia’s HOPE Scholarship.” Journal of Labor Economics, 24(4), DOI: https://doi.org/10.1086/506485
Hendren, Nathaniel and Ben Sprung-Keyser (2020). “A Unified Welfare Analysis of Government Policies.” The Quarterly Journal of Economics, 135(3): 1209–1318. DOI: https://doi.org/10.1093/qje/qjaa006
Zimmerman, Seth D. (2014). “The Returns to College Admission for Academically Marginal Students.” Journal of Labor Economics, 32(4), 711-754. DOI: https://doi.org/10.1086/676661