Pell Grants in Texas

Hendren and Sprung-Keyser (2020) calculate net costs by starting with $1,000 in initial program costs and accounting for any relevant fiscal externalities. First, Hendren and Sprung-Keyser (2020) account for the additional costs due to increased educational attainment on the part of those eligible for Pell Aid. Denning et al. (2019) show that the provision of Pell Grant aid leads to greater educational persistence on the part of students. Hendren and Sprung-Keyser (2020) sum the total number of years of additional enrollment up until seven years after first grant receipt. They calculate the costs based on total expenditures for a single year of four-year public college enrollment. In particular, they follow the approach of Zimmerman (2014), and calculate costs based on data from the Delta Cost Project. This produces more conservative estimates than the approach taken in Denning et al. (2019). Denning et al. (2019) measure total government costs in terms of Pell Grants and other grant aid crowded in, rather than including government funding directly provided to schools. The result is that $1,000 in Pell Grant Aid costs an additional $1,030 in fiscal costs during subsequent years. 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. That results in a fiscal externality of $19,409 in additional revenue to the government and a total net windfall of $17,379.

Combining these estimates, Hendren and Sprung-Keyser (2020) obtain an MVPF of \infty with a confidence interval of [\infty, \infty].

Hendren and Sprung-Keyser (2020) also consider a specification where the Pell Grant 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 \infty with a 95% confidence interval of [-\infty, \infty] .