Wisconsin Scholar Grant to Low-Income College Students
Introduction
The Wisconsin Scholar Grant (WSG) is a privately funded grant program that provides low-income students $3,500 dollars in aid per year for a maximum of five years. Wisconsin residents are eligible for the WSG if they have qualified for a federal Pell grant (after filling out the FAFSA) and matriculated to a public state university within three years of graduating from a state’s public high school. Eligible public Wisconsin institutions provide a limited set of offers through a randomized lottery, after which enrolled individuals receive funding in successive years by maintaining Pell eligibility and full-time enrollment in public universities or two-year colleges.
Hendren and Sprung-Keyser (2020) construct an MVPF of these grants using estimates from Goldrick-Rab et al. (2016) who use the randomization of the WSG offers to study its impact on degree completion and college persistence for 2008-2010 cohorts, the first three years of the program. They estimate the impact of being randomly assigned an offer on college credits separately for the first cohort (2008) and the latter two cohorts. They find an offer of WSG led to an average increase of 0.9 credits earned over the period of study for the first cohort and 2.1 credits earned amongst the second and third cohorts. Three years of college enrollment was observed after the WSG offer to the first two cohorts, but unfortunately the third cohort was only observed for two years, which means that the cumulative effects were calculated over different lengths of time.
MVPF = 1.4
Net Cost
Goldrick-Rab et al. (2016) report the fraction of take-up of the grant through six semesters, which Hendren and Sprung-Keyser (2020) use, along with the annual grant value ($3500), to find the present-discounted direct program cost. Hendren and Sprung-Keyser (2020) also calculate the cost of increased educational attainment, net of the effective family contribution, under the assumption that grant recipients did not switch to attending two-year colleges over the course of the program. They calculate government costs per full time enrollee based on data from the Delta Cost Project. They also account for the changes in taxes paid and transfers received based on the earnings gain calculated in the willingness to pay section. Those effects reduce net costs by $780, and, when combined with the additional educational expenditures of $704 and the direct program cost of $6,366, a total net cost of $6289.
Willingness to Pay
To calculate the willingness to pay, Hendren and Sprung-Keyser (2020) transform the total credits into additional years of schooling and then use estimates from Zimmerman (2014) to estimate the impact on lifetime earnings, using the fact that the average parental income in the sample is reported to be $29,918 for the first cohort. Note that no inflation adjustment was mentioned in the paper. 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. 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. They subtract out the individual contribution to schooling, which is determined by the expected family contribution. Goldrick-Rab et al. (2016) report that the expected family contribution for the first cohort of students is $1,631. The projected earnings gains provide the willingness to pay 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 simple value of the transfer for the fraction of individuals not induced to change their behavior. [Hendren and Sprung-Keyser (2020) estimate this induced fraction to be the ratio between the cohort-weighted average credit effect divided by the sum of the control mean of total credits and the credit effect. The resulting WTP is $9,016.
MVPF Summary
Combining these estimates, Hendren and Sprung-Keyser (2020) obtain an MVPF of 1.43. To obtain the confidence intervals, they bootstrap the enrollment, earning and tax revenue outcomes. They assume (conservatively) these estimates are perfectly correlated across bootstrap iterations. This leads to a 95% confidence interval of [1.00,2.32].
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 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 0.98 with a 95% confidence interval of [0.89,1.09].
References
Goldrick-Rab, Sara, Robert Kelchen, Douglas N. Harris and James Benson (2016). “Reducing Income Inequality in Educational Attainment: Experimental Evidence on the Impact of Financial Aid on College Completion.” American Journal of Sociology, 121(6), 1762-1817. DOI: https://doi.org/10.1086/685442
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
- 22308
- Country of Implementation
- United States
- Year of Implementation
- 2009
- Empirical Method
- RCT
- Research Type
- Secondary
- Peer Reviewed
- Yes
- MVPF Publication Link
- academic.oup.com/qje/article/135/3/1209/5781614