@article{4380031356cd43d69394fbb30a94a45e,
title = "ProPelled: The Effects of Grants on Graduation, Earnings, and Welfare: The effects of grants on graduation, earnings, and welfare",
abstract = "We estimate the effect of grant aid on poor college students{\textquoteright} 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{\textquoteright} 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{\textquoteright} behavioral responses and (2) a direct effect of mitigating credit constraints or other frictions that inflate students{\textquoteright} 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",
author = "Denning, {Jeffrey T.} and Marx, {Benjamin Michael} and Turner, {Lesley J.}",
note = "Funding Information: *Denning: Department of Economics, Brigham Young University, 435N CTB, Provo, UT 84602, and IZA (email: jeffdenning@byu.edu); Marx: Department of Economics, University of Illinois at Urbana-Champaign, 214 David Kinley Hall, 1407 W. Gregory, Urbana, IL 61801, MC-707 (email: benmarx@illinois.edu); Turner: Department of Economics, University of Maryland, 3114 Tydings Hall, College Park, MD 20742, NBER, and CESifo (email: turner@econ.umd.edu). David Deming was coeditor for this article. We are grateful to Celeste Carruthers, Oded Gurantz, Judy Hellerstein, Lance Lochner, Matthias Sch{\"o}n, and seminar participants at Brigham Young University, Michigan State University, Montana State University, University of Illinois at Urbana-Champaign, University of Michigan, University of Utah Department of Finance, West Virginia University, Association for Education and Finance 2017 meeting, Association for Public Policy and Management 2016 conference, International Institute of Public Finance 2017 Annual Congress, and Upjohn Institute for Employment Research for helpful comments on the draft. The conclusions of this research do not necessarily reflect the opinion or official position of the Texas Higher Education Coordinating Board, Texas Workforce Commission, or state of Texas. We gratefully acknowledge support from W.E. Upjohn Institute for Employment Research. Publisher Copyright: {\textcopyright} 2019 American Economic Association.",
year = "2019",
month = jul,
day = "1",
doi = "10.1257/app.20180100",
language = "English (US)",
volume = "11",
pages = "193--224",
journal = "American Economic Journal: Applied Economics",
issn = "1945-7782",
publisher = "American Economic Association",
number = "3",
}