Borrowing Trouble? Student Loans, the Cost of Borrowing, and Implications for the Effectiveness of Need-Based Grant Aid / Benjamin M. Marx, Lesley J. Turner.

Format:

Book

Author/Creator:

Marx, Benjamin M.

Contributor:

National Bureau of Economic Research.

Turner, Lesley J.

Series:

Working Paper Series (National Bureau of Economic Research) no. w20850.

NBER working paper series no. w20850

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2015.

Summary:

We use regression discontinuity and regression kink designs to estimate the impact of need-based grant aid on the borrowing and educational attainment of students enrolled in a large public university system. Pell Grant aid substantially reduces borrowing: among students who would borrow in the absence of a Pell Grant, every dollar of Pell Grant aid crowds-out over $1.80 of loans. A simple model illustrates that our findings are consistent with students facing a fixed cost of incurring debt. The presence of such a fixed cost may lead to the unintended consequence of additional grant aid decreasing some students' attainment. Empirically, we rule out all but modest average impacts of Pell Grant aid on attainment, and we provide suggestive evidence of heterogeneous effects consistent with our fixed-borrowing-cost model. We estimate an augmented Tobit model with random censoring thresholds to allow for heterogeneous fixed borrowing costs, and find that eliminating the fixed cost would increase borrowing by over 250 percent.

Notes:

Print version record

January 2015.