Pell Grants Introduction to Adults
Introduction
Pell Grants provide financial support to low-income students attending college, including “independent students” (those not financially dependent on parents or guardians). Hendren and Sprung-Keyser (2020) translate estimates from Seftor and Turner (2002) on the introduction of Pell Grants to estimate the MVPF of the program. Seftor and Turner (2002) study the introduction of Pell Grants in 1972, implementing a difference-in-differences analysis using data from the Current Population Survey (CPS). They estimate the effect of Pell Grants on college enrollment among individuals ages 22 to 35 by examining presumably eligible students (as determined by CPS data on income and family structure) before (1969-1972) and after (1974-1977) the program’s creation. Those presumably eligible individuals are compared to presumably ineligible individuals as a control group. 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 = 2.2
Net Cost
The treatment in this case is eligibility for the Pell Grant, and the initial program costs are $87. Hendren and Sprung-Keyser (2020) account for the additional costs due to increased educational attainment on the part of those induced to enroll by the creation of Pell Grants. Because the time period considered by Seftor and Turner (2002) falls before the earliest data from the Delta Cost Project, Hendren and Sprung-Keyser (2020) use data from the National Center for Education Statistics to compute average education and related expenditures per full-time equivalent student for all institutions in the United States between 1974 and 1977. This adds $70 to net costs. 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. On a per-capita (i.e. per-22-to-35-year-old) basis, this results in a fiscal externality of $48 and, when combined with the educational expenditures, a total net cost of $109. The 95% confidence interval for net cost is [$65 , $176].
Willingness to Pay
For willingness to pay, Hendren and Sprung-Keyser (2020) thus take the enrollment effects in Seftor and Turner (2002), translate them into additional years of schooling, and then use estimates from Zimmerman (2014) to estimate the impact on earnings. Seftor and Turner (2002) only report estimates on college enrollment at a particular point in time, and so Hendren and Sprung-Keyser (2020) must make assumptions regarding (a) the baseline share of Pell-eligible students who actually received the grants, and (b) how point-in-time enrollment translates into additional years of education. In their primary estimates, Hendren and Sprung-Keyser (2020) assume, to be conservative, that all Pell-eligible enrollees received the grant at baseline, and that enrollment translates into two additional years of schooling.
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. Zimmerman (2014) observes earnings gains in years 8-14 and Hendren and Sprung-Keyser (2020) project those gains over the rest of the lifecycle. They calculate the fiscal externality using a tax rate of 19.9% 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 of $168 for all individuals induced to change their behavior and receive more education as a result of the grants. (Because of the time period and population considered by Seftor and Turner (2002), Hendren and Sprung-Keyser (2020) assume conservatively that Pell recipients do not contribute out-of-pocket towards college costs.) 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. This produces a total willingness to pay of $238, with a 95% confidence interval of [$66 , $481].
MVPF Summary
Combining these estimates, Hendren and Sprung-Keyser (2020) get an MVPF of 2.18. To obtain the confidence intervals, they bootstrap the enrollment, earning and tax revenue outcomes. This leads to a 95% confidence interval of [0.71, 6.11].
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. This leads to an MVPF of 0.64 with a 95% confidence interval of [0.42,0.92].
References
Seftor, Neil S. and Sarah E. Turner (2002). “Back to School: Federal Student Aid Policy and Adult College Enrollment,” Journal of Human Resources, Vol. 37, No. 2 (Spring, 2002), 336-352. https://www.jstor.org/stable/3069650
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 Adult
- Beneficiary Type(s)
- Adults
- Average Age
- 28
- Average Income
- 17828
- Country of Implementation
- United States
- Year of Implementation
- 1973
- Empirical Method
- Difference in Differences
- Research Type
- Secondary
- Peer Reviewed
- Yes
- MVPF Publication Link
- academic.oup.com/qje/article/135/3/1209/5781614