New MIT study concludes that free college education my ultimately hurt the poorest students.
Making college tuition free for all has been at the center of policy debates in several countries
and states.1 Proponents argue that expanding access to higher education would improve
opportunities for groups who may have been historically left behind by financial aid policies
(Bachelet, 2012; Clinton, 2015; Sanders, 2015). However, an across-the-board reduction
in college costs may cause middle and upper income students to apply to more expensive
colleges, which then could displace high achieving low-income students, and ultimately reduce
their access to higher education.
and states.1 Proponents argue that expanding access to higher education would improve
opportunities for groups who may have been historically left behind by financial aid policies
(Bachelet, 2012; Clinton, 2015; Sanders, 2015). However, an across-the-board reduction
in college costs may cause middle and upper income students to apply to more expensive
colleges, which then could displace high achieving low-income students, and ultimately reduce
their access to higher education.
Many countries have discussed or considered making college free. While the effect that a
financial aid package has on any given student is well understood, how poor students - who
already benefit from financial aid - would be affected by free college is unclear. Poor students
might benefit from more generous financial aid, however less targeted aid is likely to motivate
newly eligible students to change their application behavior to college potentially increasing
competition for limited seats. This could crowd out poor students, who are usually at a
36
disadvantage in competitive admission processes. This paper combines rich administrative
data from Chile, where the current government promised to make college free by 2020, with a
simple structural model to answer how important crowding out could be and how important
is the design of financial aid policies.
Evidence from a difference-in-differences strategy using past financial aid expansions in
Chile shows that programs that used to attract more lower income-eligible students experienced
an increase in their admission cutoffs and a reduction in the share of poor students
after the eligibility for scholarships started expanding in 2012. On the other hand, the regression
discontinuity design on scholarship eligibility shows that financial aid has an important
intensive and extensive margin effect on enrollment. This quasi-experimental evidence highlights
the potential for crowding out as something policy makers should take into account,
and something that has been unexplored in the literature.
financial aid package has on any given student is well understood, how poor students - who
already benefit from financial aid - would be affected by free college is unclear. Poor students
might benefit from more generous financial aid, however less targeted aid is likely to motivate
newly eligible students to change their application behavior to college potentially increasing
competition for limited seats. This could crowd out poor students, who are usually at a
36
disadvantage in competitive admission processes. This paper combines rich administrative
data from Chile, where the current government promised to make college free by 2020, with a
simple structural model to answer how important crowding out could be and how important
is the design of financial aid policies.
Evidence from a difference-in-differences strategy using past financial aid expansions in
Chile shows that programs that used to attract more lower income-eligible students experienced
an increase in their admission cutoffs and a reduction in the share of poor students
after the eligibility for scholarships started expanding in 2012. On the other hand, the regression
discontinuity design on scholarship eligibility shows that financial aid has an important
intensive and extensive margin effect on enrollment. This quasi-experimental evidence highlights
the potential for crowding out as something policy makers should take into account,
and something that has been unexplored in the literature.
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