Student financial aid : three essays

Abstract

This thesis consists of three essays covering aspects of student financial aid. The first and third chapters put emphasis on the use of preference estimation and centralized admission systems as a key ingredient to answer policy relevant questions. The second chapter deals with the labor market consequences of student loans. In the first chapter, I study spillover of free college to students currently receiving generous financial aid. I show that free tuition increases demand for selective programs, making these programs more competitive and pushing them out of reach for many low-income students who would have qualified otherwise. The argument uses a combination of reduced-form regression-discontinuity estimates of enrollment elasticities and a structural model that captures general equilibrium effects. Estimates using Chilean administrative records suggest that 20% of currently enrolled poor students will lose seats to wealthier students under a free-tuition policy. This adverse effect on low-income students could be mitigated by complementary policies such as capacity investments and means-testing. However, crowd-out remains significant unless aggressive policies to counteract it are enacted. The second chapter, written jointly with Dante Contreras and Pablo Mufioz, studies the labor market returns to a state guaranteed loan (SGL) used to finance university. Using nationwide administrative data from Chile and a regression discontinuity design, we find that nine years after high school graduation, students who enrolled at a university thanks to the SGL gain 5 years of university while giving up 3 years of vocational education. In spite of this educational upgrading and the increase in the amount of debt, these students exhibit similar early labor market outcomes than ineligible students. We find no impact of this policy on wages, employment, work in the public sector, or type of employer. Low graduation rate and overall quality of the universities where treated students are admitted account for part of these null effects. In the third chapter, I use previous school preference estimates to simulate the consequence of a free-tuition proposed for K-12 in Chile that would be combined with the introduction of a centralized admission system that incorporates a quota for low-income students.