Grants vs. Loans: The Role of Financial Aid in College Major Choice

Abstract

Using administrative data from Chile, we analyze whether financing higher education through student loans or grants affects college major choices of prospective university students. We exploit institutional arrangements that allocate either type of financing based on a standardized test to locally identify exogenous variation in access. Students that are marginally eligible for grants are more likely to enroll in STEM-related fields. Relying on information from past graduates on narrowly defined college programs, we provide evidence that this effect is more generally driven by grants acting as insurance mechanism against uncertainty about degree completion.

Keywords: major choice, financial aid, education policy, regression-discontinuity-design

JEL Classification: H52, H81, I22, I28