Kalamazoo Promise Scholarship
Introduction
The Kalamazoo Promise is a place-based scholarship program that is open to any student graduating from Kalamazoo (Michigan) Public Schools (KPS) who (a) resides in the Kalamazoo school district and (b) has been continuously enrolled in a KPS school since ninth grade. The Promise, a first-dollar scholarship, subsidizes up to 100 percent of tuition and fees at any public two-year or four-year college in Michigan, with subsidy levels determined by the length of students’ continuous enrollment in KPS. Hendren and Sprung-Keyser (2020) construct an MVPF of this scholarship using causal estimates from Bartik et al. (2017). Bartik et al. (2017) examine the impact of the scholarship using a difference-in-differences design. They compare college enrollment and completion outcomes among Promise-eligible students before and after the program’s introduction in 2005, using ineligible students as a control group. For their MVPF estimate, Hendren and Sprung-Keyser (2020) use the result in Bartik et al. (2017) that the Promise scholarship increased students’ attempted college credits by 6.56 credits within four years. Hendren and Sprung-Keyser (2020) use this estimates to project the impact of the policy on lifetime earnings and tax revenue. They utilize estimates from Zimmerman (2014) on the impact attendance of college on earnings and assume that the returns to college are constant in percentage terms over the lifecycle.
MVPF = 1.9
Net Cost
Initial program costs are set to the average present-valued Promise scholarship amount plus the administrative cost of the program. The scholarship value is $17,620 while the administrative costs are 3.6% of the total, or an additional $634. Hendren and Sprung-Keyser (2020) account for additional costs due to increased educational attainment on the part of those induced to enroll for additional credits as a result of the scholarship. Following the approach of Zimmerman (2014), Hendren and Sprung-Keyser (2020) calculate government costs per full time enrollee based on data from the Delta Cost Project. This results in additional enrollment costs of $1,668 per eligible student. Finally, Hendren and Sprung-Keyser (2020) account for the changes in taxes paid and transfers received based on the earnings gains calculated in the willingness to pay section ($3,873 per student). The resulting total net cost of the program is $16,049.
Willingness to Pay
For willingness to pay, Hendren and Sprung-Keyser (2020) take the impact of the scholarship on school credits and translate that effect into additional years of schooling. They then use estimates from Zimmerman (2014) to estimate the impact on earnings. In particular, 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 at 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 increase willingness to pay by $15,566 for all individuals induced to change their behavior and receive more education as a result of the scholarship. Hendren and Sprung-Keyser (2020) calculate total willingness to pay as equal to $31,012 by summing those earnings gains with the simple value of the transfer for the fraction of individuals not induced to change their behavior.
MVPF Summary
Combining these estimates, Hendren and Sprung-Keyser (2020) obtain an MVPF of 1.93 with a 95% CI of [0.97, 5.61].
Hendren and Sprung-Keyser (2020) 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. Individuals 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 0.96 with a 95% confidence interval of [0.76, 1.21]. Hendren and Sprung-Keyser (2020) also consider an alternate specification where they assume there are additional returns to enrollment in a flagship university. Hendren and Sprung-Keyser (2020) use results from Hoekstra (2009), suggesting that enrollment at a flagship university raises earnings by 20%. Hendren and Sprung-Keyser (2020) add that impact to their earnings gains from Kalamazoo and estimate the MVPF to be 2.96 with a 95% confidence interval of [1.09, 19.23].
References
Bartik, Timothy J., Brad Hershbein, and Marta Lachowska (2017). “The Merits of Universal Scholarships: Benefit-Cost Evidence from the Kalamazoo Promise.” Journal of Benefit-Cost Analysis 7(3): 400-433. DOI: https://doi.org/10.1017/bca.2016.22
Bartik, Timothy J., Brad J. Hershbein and Marta Lachowska (2021). “The Effects of the Kalamazoo Promise Scholarship on College Enrollment and Completion.” Journal of Human Resources, Winter 2021, 56(1), 269-310. DOI: https://doi.org/10.3368/jhr.56.1.0416-7824R4
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
Policy Features
- Category
- Education
- Sub-Category
- College Child
- Beneficiary Type(s)
- Children and Youth, College enrollees, Students
- Average Age
- 20
- Average Income
- 30764
- Country of Implementation
- United States
- Year of Implementation
- 2006
- Empirical Method
- Difference in Differences
- Research Type
- Secondary
- Peer Reviewed
- Yes
- MVPF Publication Link
- academic.oup.com/qje/article/135/3/1209/5781614