NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Aid to College Students Raises Attendance and Completion


"A student who has crossed the hurdle of college entry with the assistance of aid is more likely to continue schooling later in life than one that has never attempted college."

In recent years, Federal spending on financial assistance programs for college students in the form of tax credits, loans, work study, or direct grants-in-aid has expanded rapidly. The object of such subsidies has been to encourage college attendance by lowering its price. Whether or not student financial assistance actually increases college attendance and years of school completed is a question that is still open to debate.

In Does Aid Matter? Measuring the Effect of Student Aid on College Attendance and Completion (NBER Working Paper No. 7422), Susan Dynarski uses data from the National Longitudinal Survey of Youth (NLSY) to examine whether eligibility for the Social Security Student Benefit Program, which operated from 1965 to 1982, influenced college attendance and completion rates. At its peak, this program provided grants totaling $3.7 billion a year (1998 dollars) to one out of ten college students. In 1980, the average annual benefit for 18- to 22-year-old full-time college students with a parent who had died, retired, or been disabled was $5400. At the time, tuition and fees at public universities averaged $1600, tuition and fees at private four-year colleges averaged $6100, Pell grants averaged $1700, and guaranteed student loans averaged $3800.

In 1988, NLSY participants answered a series of questions indicating whether their father had died before they reached the age of 18. Assuming that a student whose father had died was eligible for the Social Security Benefit Program, the paper compares the difference in college completion and attendance rates for students who were high school seniors before and after the program ended in 1982. Students whose fathers were alive are used as a control group.

Dynarski finds that each $1,000 of student benefits increased the share of high school graduates attending college by about 3.6 percentage points. Eligibility for the benefit program increased the number of years of schooling completed by about one year.

Further analysis suggests that this program was a cost-effective use of government funds. Comparing the lifetime earnings of people with 12 versus 13 years of completed schooling, and accounting for wages lost while in college, Dynarski concludes that an additional year of college for a member of this group would generate $15000 in extra lifetime earnings. This benefit to the individual is more than twice the $7600 it cost the government to fund the benefit.

Furthermore, Dynarski finds that "a student who has crossed the hurdle of college entry with the assistance of aid is more likely to continue schooling later in life than one that has never attempted college." Thus she concludes that an efficient aid program would provide relatively generous subsidies for the first year of college, unlike the current Pell Grant program and the Stafford loan.

-- Linda Gorman


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