Tennessee HOPE Scholarships
Introduction
The Tennessee HOPE scholarship – which provides up to $6,000 per year for full-time enrollment at a four-year school and up to $3,000 per year for enrollment at a two-year school – is available to any Tennessee student, regardless of financial need, who (a) meets either a minimum grade point average threshold or a minimum ACT score threshold, and (b) attends an in-state non-profit school (whether public or private). Hendren and Sprung-Keyser (2020) construct an MVPF of this scholarship using work by Bruce and Carruthers (2014), who examine the impact of the scholarship using a regression discontinuity design that examines students just above and just below the ACT score threshold for eligibility. Bruce and Carruthers (2014) document no significant change in overall enrollment at the ACT-score threshold for HOPE, but find evidence of shifts in enrollment from public two-year and private schools into public four-year schools among those at the eligibility threshold.
MVPF = 1.9
Net Cost
The treatment in this case is eligibility for the HOPE scholarship, and the initial program costs are set to the average total HOPE amount received scaled by the expected HOPE take-up rate for individuals crossing the regression discontinuity threshold. That equals $970 in program costs. Next, Hendren and Sprung-Keyser (2020) account for the additional costs due to increased educational attainment on the part of those induced to switch to four-year schools. 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 adds $284 to net costs. 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 a fiscal externality of $267, and, when combined with the educational expenditures, a total net cost of $987 per student at the threshold.
Willingness to Pay
For willingness to pay, Hendren and Sprung-Keyser (2020) thus take the enrollment-shift effects in Bruce and Carruthers (2014) and translate them into additional years of schooling. Hendren and Sprung-Keyser (2020) find that eligibility raises schooling by 0.022 years. They then use estimates from Zimmerman (2014) to estimate the impact on earnings. In particular, they use the results from Zimmerman (2014) 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 using a tax rate of 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 $1008 for all individuals induced to change their behavior and receive more education as a result of the scholarship. Hendren and Sprung-Keyser (2020) also subtract out individual contributions to tuition for those induced to switch from two-year to four-year schools as a result of the scholarship. Hendren and Sprung-Keyser (2020) assume that this is equal to 24% of net tuition and fees for Tennessee schools based on an approximation regarding the generosity of the scholarship. When Hendren and Sprung-Keyser (2020) scale this impact by the enrollment effect, they calculate a $26 change in willingness to pay. Hendren and Sprung-Keyser (2020) then 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. Total willingness to pay equals $1,832.
MVPF Summary
Combining these estimates, Hendren and Sprung-Keyser (2020) obtain an MVPF of 1.86 with a 95% confidence interval of [0.92,5.08].
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. The resulting MVPF for this alternate specification is 0.90 with a 95% confidence interval of [0.61,1.05].
References
Bruce, Donald J. and Celeste K. Carruthers (2014). “Jackpot? The Impact of Lottery Scholarships on Enrollment in Tennessee.” Journal of Urban Economics, 81, 30-44. DOI: https://doi.org/10.1016/j.jue.2014.01.006
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
- 26513
- 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