Maxed Out?

Abstract

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The Effects of Financial Aid Loss on Persistence and Graduation: A Multi-Dimensional Regression Discontinuity Approach

“…We also find that those losing the scholarship do not take out more in loans, suggesting that these students may not have been facing binding capital constraints. While the amount of funding loss that we study is smaller than the complete loss of funding (approximately $4,000 per year at four-year institutions and $2,000 per year at two-year institutions) in Carruthers and Ozek (2016), it is similar in magnitude to the average changes in financial aid studied in several other papers, such as Marx and Turner (2019), Barr, Bird, and Castleman (2017), and Denning and Jones (2019), the first two of which find educational effects.…”

“…While the magnitude of the funding loss examined here is relatively small compared to the complete loss of funding in Carruthers and Özek (2016), it is of the same magnitude as that found in several other financial aid papers. 40 For example, Denning and Jones (2019) find that increased eligibility for federal loans leads to an increase in $131 in borrowing for the fall semester. In an experiment, Marx and Turner (2019) present students with different offers of financial aid, resulting in an increase of $282 of loan take-up for the school year (not just the fall semester).…”

The effect of reduced student loan borrowing on academic performance and default: Evidence from a loan counseling experiment

“…The complex loan borrowing process may lead students to make suboptimal choices in student borrowing, such as borrowing the maximum loan amount because that is what is automatically included in their loan package, even if this is more than they need to cover college-related expenses. Recent work by Denning and Jones (2019) demonstrates that when the maximum amount students are allowed to borrow increases, 26 percent of students increase their borrowing. In recent years, attention to the negative consequences of overborrowing has resulted in an increasingly common position articulated in the media and by policymakers that students should borrow less, presumably under the assumption that reduced debt would decrease the likelihood of default (Avery and Turner 2012).…”