Eliminated in 1982, the Social Security Benefit Program provided $6,700 in yearly support for children aged 18-22 who had deceased parents and were attending college. At its peak the Program provided grants totaling almost $4 billion a year to approximately 10 percent of college students. Hendren and Sprung-Keyser (2020) translate work by Dynarski (2003) into an MVPF of this policy. Dynarski (2003) examines the Program using a difference-in-differences design that examines eligible and ineligible individuals before and after it was eliminated and calculates the impact on years of schooling and initial college enrollment. 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 = 4.9

The treatment in this case is the receipt of the Social Security benefit, so the initial program costs are $6,700 for each recipient. Hendren and Sprung-Keyser (2020) scale that cost by the number of years of benefit take-up and the fraction of individuals eligible for the scholarship. That produces a program cost of $11,485. Next, Hendren and Sprung-Keyser (2020) account for the additional costs due to increased educational attainment on the part of those eligible for the benefit. They use estimates from Dynarski (2003) on the additional years of educational attainment. They calculate government costs per full time enrollee based on data from the Delta Cost Project. 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 $6,686 and, when combined with the educational expenditures, a total net cost of $7175.

$7.2K
Net Cost

13.5K Upper Margin
2.2K Lower Margin

In their primary estimates Hendren and Sprung-Keyser (2020) calculate willingness to pay for the Social Security Benefit using estimates from Dynarski (2003) on the years of schooling completed. They estimate an average increase of 0.68 years of schooling per potential enrollee. From there, Hendren and Sprung-Keyser (2020) 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. They calculate the fiscal externality at 20.0% 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 $25,391 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 value of the $6700 transfer that exceeds the cost of college for the fraction of individuals induced to change their behavior and with the simple value of the transfer for the fraction of individuals not induced to change their behavior. This produces a willingness to pay of $34,861.

$34.9K
WTP

75.7K Upper Margin
5.7K Lower Margin

Combining these estimates, Hendren and Sprung-Keyser (2020) get an MVPF of 4.86 with a 95% confidence interval of [0.98,52.39].

Hendren and Sprung-Keyser (2020) also consider alternate approaches to calculating the earnings effect, allowing for aid crowding out effects, specifying the amount of benefits, and determining willingness to pay. In the case of the earnings effect, they create a specification where their earnings projections are not based on years of school completed, but rather initial college enrollment. In this case, they assume that initial enrollment results in two additional years of schooling. Hendren and Sprung-Keyser (2020) then apply the same earnings projection method from Zimmerman (2014) using these schooling increases. That specification results in an MVPF of 4.87 with a 95% confidence interval of [1.16,32.23]. As an alternative specification, Hendren and Sprung-Keyser (2020) assume that the absence of the Social Security Student Benefit leads students to seek other forms of government aid. They make the conservative assumption that all students would have been awarded Pell grants, so the baseline program cost is the benefit amount net of this other form of aid. This gives an MVPF of 6.42 with a 95% confidence interval of [0.94,\infty]. They also consider a specification in which students receive only partial benefits in the amount of $4,700, giving an MVPF of 8.75with a 95% confidence interval of [0.97,\infty]. In the case of willingness to pay, Hendren and Sprung-Keyser (2020) also considered a specification where the Social Security Student Benefit 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 1.45 with a 95% confidence interval of [0.97,2.23].

4.9
MVPF

52.4 Upper Margin
1.0 Lower Margin

Dynarski, Susan M. (2003). “Does Aid Matter? Measuring the Effect of Student Aid on College Attendance and Completion.” American Economic Review, 93(1), 279-288. DOI: https://doi.org/10.1257/000282803321455287

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

- Category
- Education
- Sub-Category
- College Child
- Beneficiary Type(s)
- Children and Youth, College enrollees, Students
- Average Age
- 20
- Average Income
- 15222
- Country of Implementation
- United States
- Year of Implementation
- 1982
- Empirical Method
- Difference in Differences
- Research Type
- Secondary
- Peer Reviewed
- Yes
- MVPF Publication Link
- academic.oup.com/qje/article/135/3/1209/5781614