Borrowing Trouble? Human Capital Investment with Opt-In Costs and Implications for the Effectiveness of Grant Aid
American Economic Journal: Applied Economics
vol. 10,
no. 2, April 2018
(pp. 163-201)
Abstract
We estimate the effect of grant aid on City University of New York (CUNY) students' borrowing and attainment using a regression discontinuity/kink design based on the federal Pell Grant formula. Each dollar of grant aid reduces loans by $1.80 among borrowers. We only find crowd-out of this magnitude in colleges that, like CUNY, "offer" no loan aid and require students to opt into borrowing. We develop and empirically support a model that shows opt-in or other fixed borrowing costs can lead grants to crowd out large amounts of loan aid, lowering some students attainment by reducing their liquid resources.Citation
Marx, Benjamin M., and Lesley J. Turner. 2018. "Borrowing Trouble? Human Capital Investment with Opt-In Costs and Implications for the Effectiveness of Grant Aid." American Economic Journal: Applied Economics, 10 (2): 163-201. DOI: 10.1257/app.20160127Additional Materials
JEL Classification
- D14 Household Saving; Personal Finance
- I22 Educational Finance; Financial Aid
- I23 Higher Education; Research Institutions
- I26 Returns to Education
- J24 Human Capital; Skills; Occupational Choice; Labor Productivity
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