Need-Based Financing Policies, College Decision-Making, and Labor Market Behavior

Abstract

Designing an effective framework for financing higher education is a major issue facing policymakers in developed and developing countries. While we have a good understanding of how college financing options affect students college outcomes in developed countries, less is known about the impact of these programs in developing countries. In general, not much work has been done on how need-based financing programs alter students work-study trade-off and their labor market outcomes after college. In this paper, I employ several quasi-experimental designs and novel administrative data from Jamaica to estimate the effect of need-based grants and student-loan financing on students' college outcomes and labor market behavior during college and in the early years after college. The results indicate that the students who benefited from either program had a higher GPA, graduated at higher rates and were more likely to remain in college beyond their third year. While both programs induce treated students to reduce labor market engagement during college, I found that they affected annual earnings differently in the early years after expected graduation.

Keywords: Need-Based Grant, Student-Loan, Graduation, Labor-Market

JEL Classification: D15, H52, I22, I28, J01