ProPelled: The Effects of Grants on Graduation, Earnings, and Welfare

57 Pages Posted: 11 Nov 2017

See all articles by Jeffrey T Denning

Jeffrey T Denning

Brigham Young University, Department of Economics; IZA Institute of Labor Economics

Benjamin Marx

University of Illinois at Urbana-Champaign

Lesley Turner

University of Maryland

Date Written: September 15, 2017

Abstract

We estimate the effect of grant aid on poor college students’ attainment and earnings using student-level administrative data from four-year public colleges in Texas. To identify these effects, we exploit a discontinuity in grant generosity as a function of family income. Eligibility for the maximum Pell Grant significantly increases degree receipt and earnings beginning four years after entry. Within 10 years, imputed taxes on eligible students’ earnings gains fully recoup total government expenditures generated by initial eligibility. To clarify how these estimates relate to social welfare, we develop a general theoretical model and derive sufficient statistics for the welfare implications of changes in the price of college. Whether additional grant aid increases welfare depends on (1) net externalities from recipients’ behavioral responses and (2) a direct effect of mitigating credit constraints or other frictions that inflate students’ in-school marginal utility. Calibrating our model using nationally representative consumption data suggests that increasing grant aid for the average college student by $1 could generate negative externalities as high as $0.50 and still improve welfare. Applying our welfare formula and estimated direct effects to our setting and others suggests considerable welfare gains from grants that target low-income students.

Keywords: Grants, Aid, Poor Students, Graduation Rates, Texas

JEL Classification: H21, H52, I22, D14, D15, D16

Suggested Citation

Denning, Jeffrey T and Marx, Benjamin and Turner, Lesley, ProPelled: The Effects of Grants on Graduation, Earnings, and Welfare (September 15, 2017). Available at SSRN: https://ssrn.com/abstract=3068025 or http://dx.doi.org/10.2139/ssrn.3068025

Jeffrey T Denning (Contact Author)

Brigham Young University, Department of Economics ( email )

130 Faculty Office Bldg.
Provo, UT 84602-2363
United States

IZA Institute of Labor Economics ( email )

P.O. Box 7240
Bonn, D-53072
Germany

Benjamin Marx

University of Illinois at Urbana-Champaign ( email )

Lesley Turner

University of Maryland ( email )

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
9
Abstract Views
269
PlumX Metrics