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.
"Borrowing Trouble? Human Capital Investment with Opt-In Costs and Implications for the Effectiveness of Grant Aid."
American Economic Journal: Applied Economics,
Household Saving; Personal Finance
Educational Finance; Financial Aid
Higher Education; Research Institutions
Returns to Education
Human Capital; Skills; Occupational Choice; Labor Productivity