The Effects of Need-Based Financial Aid on Employment and Earnings: Experimental Evidence from the Fund for Wisconsin Scholars

Deven E. Carlson, Alex Schmidt, Sarah Souders, Barbara L. Wolfe

NBER Working Paper No. 27125
Issued in May 2020
NBER Program(s):Children, Economics of Education

In this paper, we leverage the random assignment of a need-based financial aid grant offer—the Fund for Wisconsin Scholars (FFWS) grant—and several sets of administrative records to provide experimental evidence on the effects of the grant offer on students’ in-state employment and earnings. For students in four-year universities, our results demonstrate significant employment reductions in the two years immediately following the aid offer as well as in the sixth, seventh, and eighth after receiving the randomized grant offer. We also find the aid offer to reduce these students’ in-state earnings throughout the full eight-year period we study. However, we show that the aid offer increases student grade point average, suggesting that the employment and earnings reductions during students’ in-college years are attributable to a reallocation of time and effort away from employment and toward coursework. For students’ post-college years, we provide suggestive evidence that the reductions are attributable to a combination of two mechanisms: 1) Reduced loan debt offering greater financial flexibility when selecting among employment options, and 2) Offer-induced outstate migration. We find little evidence that the FFWS grant offer affects the labor market outcomes of students in two-year institutions, although the effects for students in technical colleges are significantly more positive than the effects for students in two-year colleges in the University of Wisconsin System.

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Document Object Identifier (DOI): 10.3386/w27125

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