College Costs, Financial Aid, and Student Decisions

Abstract

The increasing tension between the perceived necessity of a college degree and the challenge of paying for it has led to a proliferation of financial aid policy in the U.S. and around the world. More students are receiving more aid today, and more different types of aid, than ever before. Half a century of policy experimentation has led to an equally impressive accumulation of research evidence, facilitated by methodological advances and the widespread availability of student-level administrative data. In this chapter, we present the economic rationale for financial aid, a summary of how aid works in the U.S. context, and common methodological challenges in the study of financial aid. We then review the evidence from both inside and outside the U.S. on the causal impact of a variety of financial aid policies and programs on students' college decisions, attainment, and post-college outcomes, and summarize the overarching themes with respect to margins of impact, mechanisms, and heterogeneity. We conclude with a discussion of future directions for research.

Is rising student debt affecting retirement savings? Evidence from the survey of consumer finances

“…These results support the argument that individuals who spent more time in college after the1992 HEA had a higher amount of student loans due to the greater availability of federal loans. These findings are also consistent with those of Dynarski (2003).…”

Contexts of Convenience: Generalizing from Published Evaluations of School Finance Policies

“…For example, Oreopoulos (2007) points to myopic behavior and lack of information in dropout decisions. While some informational issues about college entry are addressed in Page and Scott-Clayton (2016) and Dynarski et al (2023a), the majority of discussion concerns financial aid and other barriers to entry (e.g., Dynarski et al (2023b). 14.…”

Adaptive Maximization of Social Welfare

“…A term capturing positive externalities of the use of ITNs could be added to social welfare, leaving the algorithm otherwise unchanged. In educational economics, many studies evaluate the impact of financial aid on college enrollment (Dynarski et al, 2023). An adaptive experiment might vary the level of aid provided, where aid is conditional on college attendance and conditional on pre-determined criteria of need or merit.…”