Estimating the Value of Higher Education Financial Aid: Evidence from a Field Experiment
Using data from a Canadian field experiment on the financial barriers to higher education, we estimate the distribution of the value of financial aid for prospective students, and relate it to parental socio-economic background, individual skills, risk and time preferences. Our results point out that a considerable share of prospective students are affected by credit constraints. We find that most of the individuals are willing to pay a sizable interest premium above the prevailing market rate for the option to take up a loan, with a median interest rate wedge equal to 6.6 percentage points for a $1,000 loan. The willingness-to-pay for financial aid is highly heterogeneous across students, with preferences and in particular discount factors, playing a key role in accounting for this variation.
We would like to thank the Social Research and Demonstration Corporation (SRDC) for allowing us to use the data, which has been developed within the “Willingness to Borrow” project, and may be obtained directly from SRDC. Christian Belzil acknowledges financial support from the ANR “Investissement d'Avenir Labex Ecodec”. We thank Peter Arcidiacono, Lance Lochner, Claude Montmarquette, Basit Zafar, and seminar participants at Cornell, CREST, Paris School of Economics, Toulouse School of Economics, as well as participants at the 2015 World Congress of the Econometric Society (Montreal), and the 2017 North American Winter Meetings of the Econometric Society (Chicago) for useful comments. Brian Clark, Melina Hillion and Jintao Sun provided excellent research assistance. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.