Borrowing trouble? Human capital investment with opt-in costs and implications for the effectiveness of grant aid

Benjamin M. Marx, Lesley J. Turner

Research output: Contribution to journalArticle

Abstract

We estimate the effect of grant aid on City University of New York (CUNY) students' borrowing and attainment using a regression discontinuity/kink design based on the federal Pell Grant formula. Each dollar of grant aid reduces loans by $1.80 among borrowers. We only find crowd-out of this magnitude in colleges that, like CUNY, "offer" no loan aid and require students to opt into borrowing. We develop and empirically support a model that shows opt-in or other fixed borrowing costs can lead grants to crowd out large amounts of loan aid, lowering some students' attainment by reducing their liquid resources.

Original languageEnglish (US)
Pages (from-to)163-201
Number of pages39
JournalAmerican Economic Journal: Applied Economics
Volume10
Issue number2
DOIs
StatePublished - Apr 1 2018

ASJC Scopus subject areas

  • Economics, Econometrics and Finance(all)

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