Estimating the Value of Higher Education Financial Aid: Evidence from a Field Experiment

Abstract

Using data from a Canadian field experiment on the financial barriers to higher education, we estimate the distribution of the value of financial aid for prospective students. Our results point out that a considerable share of prospective students are affected by credit constraints. We find that most of the individuals are willing to pay a sizable interest premium above the prevailing market rate for the option to take up a loan, with a median interest rate wedge equal to 6.8 percentage points for a $1,000 loan. The willingness-to-pay for financial aid is highly heterogeneous across students, with preferences and in particular discount factors, playing a key role in accounting for this variation.

Keywords: higher education financing, time and risk preferences, field experiment

JEL Classification: I22, I23, J24