Indiana University SPEA Edward J. Bloustein School of Planning and Public Policy University of Pennsylvania AIR American University

Panel Paper: The Long Run Effects of Financial Aid: Evidence from the Cal Grants

Friday, November 13, 2015 : 10:35 AM
Tuttle Center (Hyatt Regency Miami)

*Names in bold indicate Presenter

Eric Bettinger1, Oded Gurantz1, Laura Kawano2 and Bruce Sacerdote3, (1)Stanford University, (2)U.S. Department of Treasury, (3)Dartmouth College
State-based merit-aid programs have become a popular tool for increasing human capital

investment, and research suggest that these programs have the potential to increase college

attendance rates and completion rates (Cornwell, Mustard, & Sridhar, 2006; Dynarski, 2000,

2004, 2008; Kane, 2003; Scott-Clayton, 2011). The promise of state merit-aid programs is

threefold: incentivize additional academic effort in high school; directly increase college

attendance and completion rates; and to decrease “brain drain”, by increasing the likelihood that

top-performing students reside and contribute to the state’s economy. Nonetheless, merit aid

may not be an efficient method for meeting these goals: most of the subsidies may be transfers to

students who would have completed college without aid; poor design may induce selection into

lower-quality institutions or lower degree production in high-demand fields (Cohodes &

Goodman, 2014; Sjoquist & Winters, 2013b); and there is little evidence that attending college

has a causal impact on remaining within that state as a working adult (Malamud & Wozniak,

2012; Sjoquist & Winters, 2014; Wozniak, 2010).

Our paper analyzes educational investments using California’s Cal Grant program, a hybrid

merit- and need-based program that is the largest in the nation (NASSGAP, 2012). Using two

cohorts of students who entered college in the 1999-2000 and 2000-01 academic years, we

estimate the causal, long-term impacts of Cal Grant on postsecondary and workforce outcomes

by linking application data to records from the National Student Clearinghouse (NSC) and the

United States Department of the Treasury. We construct causal estimates using a regression

discontinuity design, where identification arises from the fact that Cal Grant eligibility primarily

depends on a student meeting a minimum GPA requirement and being below specific income

thresholds. Initial NSC results that focus on Cal Grant A suggest that the offer of aid increases

Bachelor degree completion by two to five percentage points across both GPA and income

thresholds and increases graduate degree completion by approximately three percentage points

for students just above the minimum GPA threshold. As Cal Grant A take-up is approximately

40 percentage points, in large part as it cannot be used for attendance in community college,

corresponding IV estimates are roughly two and half times as large. In addition to educational

outcomes, we will present evidence on currently understudied aspects of state-based merit aid,

including effects on student migration across state lines and workforce outcomes into students’

early 30s. This paper is the first to construct regression discontinuity estimates of merit-aid

receipt on long-term mobility and employment outcomes, as the few available studies rely on

large panel data estimates (Sjoquist & Winters, 2013a, 2014; Zhang & Ness, 2010). Our result

will shed significant light on whether merit-based aid policies, which have spent billions of

dollars over the last few decades, are producing their intended effects.