Do and Should Financial Aid Packages Affect Students' College Choices?

68 Pages Posted: 27 Oct 2003  

Christopher Avery

Harvard University - Harvard Kennedy School (HKS); National Bureau of Economic Research (NBER)

Caroline M. Hoxby

Stanford University; National Bureau of Economic Research (NBER); Hoover Institution; Stanford University

Date Written: February 2003

Abstract

Every year, thousands of high school seniors with high college aptitude face complicated menus' of scholarship and aid packages designed to affect their college choices. Using an original survey designed for this paper, we investigate whether students respond to their menus' like rational human capital investors. Whether they make the investments efficiently is important not only because they are the equivalent of the Fortune 500' for human capital, but also because they are likely to be the most analytic and long-sighted student investors. We find that the typical high aptitude student chooses his college and responds to aid in a manner that is broadly consistent with rational investment. However, we also find some serious anomalies: excessive response to loans and work-study, strong response to superficial aspects of a grant (such as whether it has a name), and response to a grant's share of college costs rather than its amount. Approximately 30 percent of high aptitude students respond to aid in a way that apparently reduces their lifetime present value. While both a lack of sophistication/information and credit constraints can explain the behavior of this 30 percent of students, the weight of the evidence favors a lack of sophistication.

Suggested Citation

Avery, Christopher and Hoxby, Caroline M., Do and Should Financial Aid Packages Affect Students' College Choices? (February 2003). NBER Working Paper No. w9482. Available at SSRN: https://ssrn.com/abstract=379801

Christopher Avery (Contact Author)

Harvard University - Harvard Kennedy School (HKS) ( email )

79 John F. Kennedy Street
Cambridge, MA 02138
United States
617-496-4063 (Phone)
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National Bureau of Economic Research (NBER)

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Caroline M. Hoxby

Stanford University ( email )

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Stanford, CA 94305-6072
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
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Hoover Institution ( email )

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United States

Stanford University ( email )

Department of Economics
Stanford University
Stanford, CA 94305
United States
650-725-8719 (Phone)
650-725-5702 (Fax)

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