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Study: Aid Alters Parental Contributions for Students

February 12, 2013

Government-provided tuition subsidies "crowd out" parental contributions to their children's college educations, although the effect is much more pronounced for students from wealthier families than for those from lower-income backgrounds, a study published Monday by the National Bureau of Economic Research asserts. The paper, written by two economists at the University of British Columbia and scholars from Yale and New York University (abstract available here), applies economic modeling to test how various changes in federal financial aid policy would play out if they were put in place. Among other things, the researchers estimate that "every additional dollar of government grants crowds out 20-30 cents of parental [intergenerational transfers of wealth] on average," but that "while for wealthy parents with high ability children public subsidies crowd out private transfers, poorer parents tend to reinforce government subsidies since the expected return to their transfers increases when college becomes more attainable, particularly for those with high ability children."

The researchers also say their data show that the federal financial aid programs contribute meaningfully to the public welfare. "Indeed, we estimate that the combined system of federal aid to college students (grants and loans) is worth 2.5 percent of GDP," they write.

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Doug Lederman

Doug Lederman is editor and co-founder of Inside Higher Ed. He helps lead the news organization's editorial operations, overseeing news content, opinion pieces, career advice, blogs and other features. Doug speaks widely about higher education, including on C-Span and National Public Radio and at meetings and on campuses around the country, and his work has appeared in The New York Times and USA Today, among other publications. Doug was managing editor of The Chronicle of Higher Education from 1999 to 2003. Before that, Doug had worked at The Chronicle since 1986 in a variety of roles, first as an athletics reporter and editor. He has won three National Awards for Education Reporting from the Education Writers Association, including one in 2009 for a series of Inside Higher Ed articles he co-wrote on college rankings. He began his career as a news clerk at The New York Times. He grew up in Shaker Heights, Ohio, and graduated in 1984 from Princeton University. Doug lives with his wife, Kate Scharff, in Bethesda, Md.

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