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Optimal Need-Based Financial Aid

Mark Colas, Sebastian Findeisen and Dominik Sachs

Journal of Political Economy, 2021, vol. 129, issue 2, 492 - 533

Abstract: We study the optimal design of student financial aid as a function of parental income. We derive optimal financial aid formulas in a general model. We estimate a model of selection into college for the United States that comprises multidimensional heterogeneity, endogenous parental transfers, dropout, labor supply in college, and uncertain returns. We quantify optimal financial aid in the estimated model and find it is strongly declining in parental income even without distributional concerns. Equity and efficiency go hand in hand.

Date: 2021
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Related works:
Working Paper: Optimal Need-Based Financial Aid (2018) Downloads
Working Paper: Optimal Need-Based Financial Aid (2018) Downloads
Working Paper: Optimal Need-Based Financial Aid (2018) Downloads
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