Seminar: College Finance, Migration and Long term Financial Well-Being of Students
On Monday December 9th 2019, Wilbert van der Klaauw (Federal Reserve Bank of New York) will give a presentation titled: "College Finance, Migration and Long term Financial Well-Being of Students"
College cost and subsidization of college cost have been a source of debate in both policy and research. Exploiting state merit aid programs and a new dataset that exploits a unique anonymized dataset that combines information from two large administrative datasets, the NY Fed Consumer Credit Panel and the National Student Clearinghouse, we investigate the effect of subsidies to college cost on short term educational outcomes and long term financial outcomes. We find no evidence that merit aid eligibility increased the propensity of students to go to college or the probability of degree attainment. However, we find evidence of substitution between majors, away from Arts and Humanities and towards Business. Turning to financial outcomes, we find that merit eligibility reduced both student loan borrowing and balances, but led to substitutions into auto loan and credit card borrowing. We find no evidence of effects on student loan delinquency rates or defaults, but there is robust evidence of perceptible increases in credit card and auto loan delinquencies. Studying heterogeneity of effects by program generosity, we find that these effects are markedly stronger in states where the merit aid covers a higher proportion of tuition. Interestingly, students in these states are more likely to stay in-state as young adults, thus suggesting appropriately designed merit aid programs can mitigate a “brain drain”. Studying heterogeneities by neighborhood of origin, we find that merit eligible students from low-income and high-black neighborhoods resorted to perceptibly higher credit card and auto loan borrowing and faced lower delinquencies at college going ages, plausibly due to relaxation of credit constraints. Interestingly, these patterns were reversed after traditional college going ages when this financial aid was no longer forthcoming.