Pell Grants in Tennessee
Introduction
The Pell Grant provides financial support to students from low-income families attending college. Hendren and Sprung-Keyser (2020) construct an MVPF of these grants in Tennessee using estimates from Carruthers and Welch (2019). Carruthers and Welch (2019) examine the impact of additional Pell Grant provision in the state of Tennessee using a discontinuity in Pell provision for those just above and just below the Expected Family Contribution threshold for Pell eligibility. Carruthers and Welch (2019) use this discontinuity to calculate the impact of Pell eligibility on the enrollment decisions of Tennessee high school graduates. Carruthers and Welch (2019) find evidence of small decreases in enrollment among marginally Pell-eligible students in four-year in-state public universities. They also find small increases in enrollment in two-year schools (both in-state and out-of-state) and in out-of-state and private four-year colleges. Hendren and Sprung-Keyser (2020) use these 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 = 0.9
Net Cost
Initial program costs are set to the average total Pell amount received by marginally eligible students over the entirety of their time in school ($1,415). Hendren and Sprung-Keyser (2020) account for the additional changes in costs due to changes in enrollment as a result of the Pell grant. 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 decreases costs by $109. Next, 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. This results in an increase in costs of $89 per student at the Pell eligibility threshold. Finally, Hendren and Sprung-Keyser (2020) account for the fact that the Pell Grant induced individuals to attend more expensive schools. This raises government costs by $78. Putting these values together results in a total net cost of $1,317 per student at the threshold.
Willingness to Pay
For willingness to pay, Hendren and Sprung-Keyser (2020) take the total two-year and four-year enrollment effects in Carruthers and Welch (2019) and translate them into additional years of schooling. In this case, the reduction in four-year schooling offsets the gains in two-year schooling and the total schooling change is -0.0072 years. Hendren and Sprung-Keyser (2020) 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 an increase in earnings in years 1-7 after enrollment and then the decline in earnings over the rest of the lifecycle. Hendren and Sprung-Keyser (2020) calculate the fiscal externality at 20% 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. Once taxes and transfers are netted out, the enrollment change reduces post-tax earnings by $335. Willingness to pay amongst those induced to change their schooling decisions is calculated by taking those earnings changes and adding changes in individual contributions to schooling costs ($27). Hendren and Sprung-Keyser (2020) calculate total willingness to pay taking that component of willingness to pay and adding the simple value of the transfer at the eligibility threshold for the fraction of individuals not induced to change their behavior. Total willingness to pay equals $1,111.
MVPF Summary
Combining these estimates, Hendren and Sprung-Keyser (2020) obtain an MVPF of 0.85, with a 95% confidence interval of [-1.59,3.57].
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 1.08.
Hendren and Sprung-Keyser (2020) also consider alternate specifications that alter the cost of the Pell Grant. Hendren and Sprung-Keyser (2020) include one alternate specification where it is assumed that the additional Pell Grant is only received in one year. That produces an MVPF of 0.46 with a 95% confidence interval of [-6.73, 114.43]). Hendren and Sprung-Keyser (2020) include another specification where the Pell Grant is received for four years for those enrolled in 4-year schools and the Pell Grant is received two years for those enrolled in two-year schools. That produces an MVPF of 0.81 with a 95% confidence interval of [-1.82, 4.47].
The estimates used to calculate this MVPF may have been updated in a more recent working or published version of the paper.
References
Carruthers, Celeste K. and Jilleah G. Welch (2019). “Not Whether, but Where? Pell Grants and College Choices,” Journal of Public Economics, 172, 1-19. DOI: https://doi.org/10.1016/j.jpubeco.2018.11.006
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
- 22583
- Country of Implementation
- United States
- Year of Implementation
- 2008
- Empirical Method
- Regression Discontinuity
- Research Type
- Secondary
- Peer Reviewed
- Yes
- MVPF Publication Link
- academic.oup.com/qje/article/135/3/1209/5781614