The Following is a paper put out by the National Bureau of Economic Research. It has nothing to do with the book by Matthew Lekso, it is merely here for educational purposes.
Does Grant Aid Attract More Students than Loans?
The rising cost of higher education makes it more difficult for universities and colleges to attract students from low-income families as well as those from more prosperous households.
The average cost of attending a four-year college has risen from $9,539 in 1988 to $12,282 in 1998, in constant 1999 dollars.
To deal with this problem, federal and state governments have increased their grant and scholarship programs. Washington’s Pell Grants, for instance, were made more generous during the 1990s. Also, a number of colleges and universities have mproved their financial aid programs in order to attract low-income students, some of whom will be minorities.
Previous marketing research finds that student enrollment is sensitive to the amount of tuition and the level of Pell Grants. Students do examine their “net college costs” after taking account of grants, and not just the “sticker price” of tuition and other college costs, in deciding to attend a specific institution. The higher the net cost, the less likely a student will attend a particular college or university.
In Financial Aid Packages and College Enrollment Decisions: An Econometric Case Study (NBER Working Paper No. 9228), authors David Linsenmeier, Harvey Rosen, and Cecilia Rouse examine the effect of a change in the financial aid policy of an inidentified university in the Northeast region of the United States in 1998. Prior to that time, the university’s financial aid packages for low-income students consisted of grants, loans, and campus jobs. Grant aid includes funds from any source, such as Pell Grants and university endowment funds, that are provided without expectation of repayment or any work done by the student. Loans must be repaid with interest, although payments and accrual of interest may be deferred until some time after graduation.
Interest may be less than market rate. Job aid consists of a paid position at the Northeastern university, usually requiring nine hours of work each week during the academic year. After the change in the university’s policy, the entire loan portion of the package for low-income students was replaced with grants. This is more expensive for the institution. But the hope was it would prevent qualified low-income students from declining the University’s offer of admission for financial reasons. These concerns were natural given that there had been a recent drop in the number of low-income students accepting the school’s admissions offers.
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