How You Pay Affects How You Do: Financial Aid Type and Student Performance in College

Peter Cappelli, Shinjae Won

NBER Working Paper No. 22604
Issued in September 2016
NBER Program(s):Economics of Education, Labor Studies

Students receiving financial aid pay different amounts for equivalent education and do so in different ways: Grants, which do not have to be repaid, loans, which are paid back in the future, and work-study, pay-as-you-go. We examine the effects of need-based aid independent of study ability on student outcomes – grade point average in particular - controlling for student background and attributes they had prior to college. We also analyze grades within colleges. The results suggest that students receiving need-based grants do significantly better in college than those not receiving financial aid while those paying for college with loans perform significantly worse than students receiving other forms of aid.

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Document Object Identifier (DOI): 10.3386/w22604

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