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This paper uses a discontinuity in the funding formula for the Pell Grant to estimate the effect of extra financial aid on students attending public colleges in Texas 2/x
They find big impacts of Pell aid on freshmen just beginning at 4 year colleges. An extra $1k of financial aid increases graduation within 7 years by about 15 percent. They also find earnings gains of 7-10 percent using TX admin data 3/x
My favorite part about the paper is their careful welfare analysis of financial aid. The key insight is that increased earnings increases tax payments, which lower the fiscal cost of the program 4/x
They calculate that the government likely *fully recoups the cost of Pell grant aid* within 10 years because of the fiscal externality generated by earnings gains 5/x
Translation – for these students, financial aid pays for itself. It’s a free lunch 6/x
Caveat: they find no significant impacts on earnings for returning students (impacts are positive, but small). One likely reason is that about 80 percent of them graduate anyway, limiting the “dosage” impact of aid 7/x
2nd caveat: we don’t know what would happen if increases in financial aid – or free college – increased graduation rates for thousands of students all at the same time. Earnings gains could be lower, and the program might have nonzero fiscal costs in that case 8/x
There are lots of studies about Pell – IMO, this one has the best claim to causality. I used to think that the Pell grant wasn’t very effective (see my lit review in this paper - http://www.hamiltonproject.org/assets/files/increasing_college_completion_with_federal_higher_education_matching_grant_pp.pdf … – written in 2017), but ProPelled has changed my mind 9/x
It’s a great paper. Read it, cite it, and if you are a journalist, write about it! 10/10
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