Does Aid Matter? Measuring the Effect of Student Aid on College Attendance and Completion.

Does student financial aid increase college attendance, or simply subsidize costs for infra-marginal students? Settling the question empirically is a challenge, because aid is correlated with many characteristics that influence schooling decisions. A shift in financial aid policy that affects some youth but not others can provide an identifying source of variation in aid. In 1982, Congress eliminated the Social Security student benefit program, which at its peak provided grants totaling $3.9 billion a year (amounts are in constant 2000 dollars) to one out of eight college students. I use difference-in-differences analysis to evaluate the effect of this program on schooling outcomes. Using the death of a parent to proxy for Social Security beneficiary status, I find that the college attendance of the affected group dropped by more than a third, and schooling by two-thirds of a year. Offering $1,000 of grant aid increases the probability of attending college by 3.6 percentage points and years of completed schooling by a tenth of a year. Aid eligibility also appears to have a positive impact on school quality.