The Merits of Universal Scholarships: Benefit-Cost Evidence from the Kalamazoo Promise
46 Pages Posted: 9 Mar 2016 Last revised: 27 Oct 2016
Date Written: September 2016
As the costs of higher education rise, many communities have begun to adopt their own financial aid strategy: place-based scholarships for students graduating from the local school district. Some place-based scholarships impose merit- and/or need-based restrictions, while others require little more than residency and graduation. In this paper, we examine the reach and cost-effectiveness of the Kalamazoo Promise, one of the more universal and more generous place-based scholarships. Building upon estimates of the program’s heterogeneous effects on degree attainment, individual-level scholarship cost data, and projections of future earning profiles by education, we examine the Promise’s benefit-cost ratios for different types of students differentiated by income, race, and gender. Although the average break-even rate of return of the program is about 11 percent, rates of return vary greatly by group. The Promise has high returns for both low-income and non-low-income groups, for nonwhites, and for women, while benefit assumptions matter more for whites and men. Our results show that universal scholarships can reach many students and have a high rate of return, particularly for places with a high percentage of African American students.
Keywords: place-based scholarship, enrollment, college completion, natural experiment, difference-in-differences, financial aid policy, benefit-cost analysis
JEL Classification: I21, I22, I24
Suggested Citation: Suggested Citation