IDEAS home Printed from https://ideas.repec.org/a/eee/eecrev/v168y2024ics0014292124001296.html
   My bibliography  Save this article

The limited impact of free college policies

Author

Listed:
  • Ferreyra, Maria Marta
  • Garriga, Carlos
  • Martin-Ocampo, Juan David
  • Sanchez-Diaz, Angelica Maria

Abstract

Despite the growing popularity of free college proposals, countries with higher subsidies often exhibit higher enrollment rates, but not necessarily higher graduation rates. This paper investigates the mediating role of student effort in the impact of tuition-free policies. We estimate a dynamic model of college enrollment, academic progression, and graduation using comprehensive student-level data from Colombia. In the model, student effort directly influences class completion and moderates the risk of poor performance or dropout. Simulating two policy scenarios — universal free college and performance-based free college — we find that universal free college triggers the largest enrollment increase but minimal change in graduation rates, aligning with observed cross-country patterns. Meanwhile, performance-based free college induces a more moderate enrollment expansion while simultaneously yielding a higher graduation rate. This divergence stems from the differing mechanisms of these policies: universal free college primarily addresses financial constraints, whereas performance-based incentives promote enhanced student effort.

Suggested Citation

  • Ferreyra, Maria Marta & Garriga, Carlos & Martin-Ocampo, Juan David & Sanchez-Diaz, Angelica Maria, 2024. "The limited impact of free college policies," European Economic Review, Elsevier, vol. 168(C).
  • Handle: RePEc:eee:eecrev:v:168:y:2024:i:c:s0014292124001296
    DOI: 10.1016/j.euroecorev.2024.104800
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0014292124001296
    Download Restriction: Full text for ScienceDirect subscribers only

    File URL: https://libkey.io/10.1016/j.euroecorev.2024.104800?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Timothy J. Bartik & Brad Hershbein & Marta Lachowska, 2021. "The Effects of the Kalamazoo Promise Scholarship on College Enrollment and Completion," Journal of Human Resources, University of Wisconsin Press, vol. 56(1), pages 269-310.
    2. Rong Hai & James Heckman, 2017. "Inequality in Human Capital and Endogenous Credit Constraints," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 25, pages 4-36, April.
    3. Akyol, Ahmet & Athreya, Kartik, 2005. "Risky higher education and subsidies," Journal of Economic Dynamics and Control, Elsevier, vol. 29(6), pages 979-1023, June.
    4. Lance J. Lochner & Alexander Monge-Naranjo, 2011. "The Nature of Credit Constraints and Human Capital," American Economic Review, American Economic Association, vol. 101(6), pages 2487-2529, October.
    5. Lutz Hendricks & Oksana Leukhina, 2018. "The Return To College: Selection And Dropout Risk," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 59(3), pages 1077-1102, August.
    6. William N. Evans & Melissa S. Kearney & Brendan Perry & James X. Sullivan, 2020. "Increasing Community College Completion Rates Among Low‐Income Students: Evidence from a Randomized Controlled Trial Evaluation of a Case‐Management Intervention," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 39(4), pages 930-965, September.
    7. Pedro Carneiro & James J. Heckman, 2002. "The Evidence on Credit Constraints in Post--secondary Schooling," Economic Journal, Royal Economic Society, vol. 112(482), pages 705-734, October.
    8. Oded Gurantz, 2020. "What Does Free Community College Buy? Early Impacts from the Oregon Promise," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 39(1), pages 11-35, January.
    9. Ralph Stinebrickner & Todd Stinebrickner, 2014. "Academic Performance and College Dropout: Using Longitudinal Expectations Data to Estimate a Learning Model," Journal of Labor Economics, University of Chicago Press, vol. 32(3), pages 601-644.
    10. Diego Restuccia & Carlos Urrutia, 2004. "Intergenerational Persistence of Earnings: The Role of Early and College Education," American Economic Review, American Economic Association, vol. 94(5), pages 1354-1378, December.
    11. Lindsay C. Page & Jennifer E. Iriti & Danielle J. Lowry & Aaron M. Anthony, 2019. "The Promise of Place-Based Investment in Postsecondary Access and Success: Investigating the Impact of the Pittsburgh Promise," Education Finance and Policy, MIT Press, vol. 14(4), pages 572-600, Fall.
    12. Joshua Angrist & David Autor & Amanda Pallais, 2022. "Marginal Effects of Merit Aid for Low-Income Students [“Bootstrap Tests for Distributional Treatment Effects in Instrumental Variable Models,”]," The Quarterly Journal of Economics, Oxford University Press, vol. 137(2), pages 1039-1090.
    13. Levhari, David & Weiss, Yoram, 1974. "The Effect of Risk on the Investment in Human Capital," American Economic Review, American Economic Association, vol. 64(6), pages 950-963, December.
    14. Alex Solis, 2017. "Credit Access and College Enrollment," Journal of Political Economy, University of Chicago Press, vol. 125(2), pages 562-622.
    15. Charles T. Clotfelter & Steven W. Hemelt & Helen F. Ladd, 2018. "Multifaceted Aid For Low‐Income Students And College Outcomes: Evidence From North Carolina," Economic Inquiry, Western Economic Association International, vol. 56(1), pages 278-303, January.
    16. Christopher Cornwell & David B. Mustard & Deepa J. Sridhar, 2006. "The Enrollment Effects of Merit-Based Financial Aid: Evidence from Georgia's HOPE Program," Journal of Labor Economics, University of Chicago Press, vol. 24(4), pages 761-786, October.
    17. Susan Dynarski, 2008. "Building the Stock of College-Educated Labor," Journal of Human Resources, University of Wisconsin Press, vol. 43(3), pages 576-610.
    18. Susan M. Dynarski, 2003. "Does Aid Matter? Measuring the Effect of Student Aid on College Attendance and Completion," American Economic Review, American Economic Association, vol. 93(1), pages 279-288, March.
    19. Eric Bettinger, 2004. "How Financial Aid Affects Persistence," NBER Chapters, in: College Choices: The Economics of Where to Go, When to Go, and How to Pay For It, pages 207-238, National Bureau of Economic Research, Inc.
    20. Page, Lindsay C. & Scott-Clayton, Judith, 2016. "Improving college access in the United States: Barriers and policy responses," Economics of Education Review, Elsevier, vol. 51(C), pages 4-22.
    21. Benjamin L. Castleman & Bridget Terry Long, 2016. "Looking beyond Enrollment: The Causal Effect of Need-Based Grants on College Access, Persistence, and Graduation," Journal of Labor Economics, University of Chicago Press, vol. 34(4), pages 1023-1073.
    22. Eckstein, Z. & Wolpin, K.I., 1997. "Youth Employment and Academic Perfomance in High School," Papers 24-97, Tel Aviv.
    23. Castro-Zarzur, Rosa & Espinoza, Ricardo & Sarzosa, Miguel, 2022. "Unintended consequences of free college: Self-selection into the teaching profession," Economics of Education Review, Elsevier, vol. 89(C).
    24. Scott-Clayton, Judith & Zafar, Basit, 2019. "Financial aid, debt management, and socioeconomic outcomes: Post-college effects of merit-based aid," Journal of Public Economics, Elsevier, vol. 170(C), pages 68-82.
    25. Michael P. Keane, 2002. "Financial Aid, Borrowing Constraints, and College Attendance: Evidence from Structural Estimates," American Economic Review, American Economic Association, vol. 92(2), pages 293-297, May.
    26. Kartik Athreya & Janice Eberly, 2021. "Risk, the College Premium, and Aggregate Human Capital Investment," American Economic Journal: Macroeconomics, American Economic Association, vol. 13(2), pages 168-213, April.
    27. Beneito, P. & Boscá, J.E. & Ferri, J., 2018. "Tuition fees and student effort at university," Economics of Education Review, Elsevier, vol. 64(C), pages 114-128.
    28. Dan Ariely & Uri Gneezy & George Loewenstein & Nina Mazar, 2009. "Large Stakes and Big Mistakes," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 76(2), pages 451-469.
    29. Oreopoulos, Philip & Petronijevic, Uros, 2019. "The Remarkable Unresponsiveness of College Students to Nudging and What We Can Learn from It," IZA Discussion Papers 12460, Institute of Labor Economics (IZA).
    30. Dynarski, Susan, 2000. "Hope for Whom? Financial Aid for the Middle Class and Its Impact on College Attendance," National Tax Journal, National Tax Association;National Tax Journal, vol. 53(3), pages 629-662, September.
    31. Lutz Hendricks & Oksana Leukhina, 2017. "How Risky is College Investment?," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 26, pages 140-163, October.
    32. Stephen V. Cameron & James J. Heckman, 1998. "Life Cycle Schooling and Dynamic Selection Bias: Models and Evidence for Five Cohorts of American Males," Journal of Political Economy, University of Chicago Press, vol. 106(2), pages 262-333, April.
    33. Thomas Ahn & Peter Arcidiacono & Amy Hopson & James R. Thomas, 2019. "Equilibrium Grade Inflation with Implications for Female Interest in STEM Majors," NBER Working Papers 26556, National Bureau of Economic Research, Inc.
    34. Lutz Hendricks & Oksana Leukhina, 2017. "How Risky is College Investment?," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 26, pages 140-163, October.
    35. Matsuda, Kazushige, 2020. "Optimal timing of college subsidies: Enrollment, graduation, and the skill premium," European Economic Review, Elsevier, vol. 129(C).
    36. Susan Dynarski & C.J. Libassi & Katherine Michelmore & Stephanie Owen, 2018. "Closing the Gap: The Effect of a Targeted, Tuition-Free Promise on College Choices of High-Achieving, Low-Income Students," NBER Working Papers 25349, National Bureau of Economic Research, Inc.
    37. Jeffrey T. Denning, 2017. "College on the Cheap: Consequences of Community College Tuition Reductions," American Economic Journal: Economic Policy, American Economic Association, vol. 9(2), pages 155-188, May.
    38. Altonji, Joseph G, 1993. "The Demand for and Return to Education When Education Outcomes Are Uncertain," Journal of Labor Economics, University of Chicago Press, vol. 11(1), pages 48-83, January.
    39. Stephen V. Cameron & James J. Heckman, 1999. "The Dynamics of Educational Attainment for Blacks, Hispanics, and Whites," NBER Working Papers 7249, National Bureau of Economic Research, Inc.
    40. Stephen V. Cameron & James J. Heckman, 1998. "Life Cycle Schooling and Dynamic Selection Bias: Models and Evidence for Five Cohorts," NBER Working Papers 6385, National Bureau of Economic Research, Inc.
    41. Judith Scott-Clayton, 2011. "On Money and Motivation: A Quasi-Experimental Analysis of Financial Incentives for College Achievement," Journal of Human Resources, University of Wisconsin Press, vol. 46(3), pages 614-646.
    42. Juliana Londoño-Vélez & Catherine Rodríguez & Fabio Sánchez, 2020. "Upstream and Downstream Impacts of College Merit-Based Financial Aid for Low-Income Students: Ser Pilo Paga in Colombia," American Economic Journal: Economic Policy, American Economic Association, vol. 12(2), pages 193-227, May.
    43. Berry, Steven & Levinsohn, James & Pakes, Ariel, 1995. "Automobile Prices in Market Equilibrium," Econometrica, Econometric Society, vol. 63(4), pages 841-890, July.
    44. Susan Dynarski & Judith Scott-Clayton, 2013. "Financial Aid Policy: Lessons from Research," NBER Working Papers 18710, National Bureau of Economic Research, Inc.
    45. Kevin M. Stange, 2012. "An Empirical Investigation of the Option Value of College Enrollment," American Economic Journal: Applied Economics, American Economic Association, vol. 4(1), pages 49-84, January.
    46. Christopher Avery & Jessica Howell & Matea Pender & Bruce Sacerdote, 2019. "Policies and Payoffs to Addressing America's College Graduation Deficit," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 50(2 (Fall)), pages 93-172.
    47. Murphy, Richard & Scott-Clayton, Judith & Wyness, Gill, 2019. "The end of free college in England: Implications for enrolments, equity, and quality," Economics of Education Review, Elsevier, vol. 71(C), pages 7-22.
    48. Stinebrickner, Ralph & Stinebrickner, T.R.Todd R., 2004. "Time-use and college outcomes," Journal of Econometrics, Elsevier, vol. 121(1-2), pages 243-269.
    49. Rong Hai & James Heckman, 2017. "Inequality in Human Capital and Endogenous Credit Constraints," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 25, pages 4-36, April.
    50. Keane, Michael P & Wolpin, Kenneth I, 2001. "The Effect of Parental Transfers and Borrowing Constraints on Educational Attainment," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 42(4), pages 1051-1103, November.
    51. Eric Bettinger & Oded Gurantz & Laura Kawano & Bruce Sacerdote & Michael Stevens, 2019. "The Long-Run Impacts of Financial Aid: Evidence from California's Cal Grant," American Economic Journal: Economic Policy, American Economic Association, vol. 11(1), pages 64-94, February.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Ferreyra,Maria Marta & Garriga,Carlos & Martin,Juan David & Sanchez Diaz,Angelica Maria, 2020. "Raising College Access and Completion : How Much Can Free College Help ?," Policy Research Working Paper Series 9428, The World Bank.
    2. Matsuda, Kazushige, 2020. "Optimal timing of college subsidies: Enrollment, graduation, and the skill premium," European Economic Review, Elsevier, vol. 129(C).
    3. George Bulman & Robert Fairlie & Sarena Goodman & Adam Isen, 2021. "Parental Resources and College Attendance: Evidence from Lottery Wins," American Economic Review, American Economic Association, vol. 111(4), pages 1201-1240, April.
    4. Lindsay C. Page & Judith Scott-Clayton, 2015. "Improving College Access in the United States: Barriers and Policy Responses," NBER Working Papers 21781, National Bureau of Economic Research, Inc.
    5. Page, Lindsay C. & Scott-Clayton, Judith, 2016. "Improving college access in the United States: Barriers and policy responses," Economics of Education Review, Elsevier, vol. 51(C), pages 4-22.
    6. Molina, Teresa & Rivadeneyra, Ivan, 2021. "The schooling and labor market effects of eliminating university tuition in Ecuador," Journal of Public Economics, Elsevier, vol. 196(C).
    7. Andrews, Rodney J. & Imberman, Scott A. & Lovenheim, Michael F., 2020. "Recruiting and supporting low-income, high-achieving students at flagship universities," Economics of Education Review, Elsevier, vol. 74(C).
    8. Elena Mattana & Juanna Joensen, 2014. "Student Aid, Academic Achievement, and Labor Market Behavior: Grants or Loans?," 2014 Meeting Papers 707, Society for Economic Dynamics.
    9. Aguirre, Josefa, 2021. "Long-term effects of grants and loans for vocational education," Journal of Public Economics, Elsevier, vol. 204(C).
    10. Elena Mattana & Juanna Joensen, 2016. "Student Aid, Academic Achievement, and Labor Market Behavior," 2016 Meeting Papers 1102, Society for Economic Dynamics.
    11. Matsuda, Kazushige & Mazur, Karol, 2022. "College education and income contingent loans in equilibrium," Journal of Monetary Economics, Elsevier, vol. 132(C), pages 100-117.
    12. Brant Abbott & Giovanni Gallipoli & Costas Meghir & Giovanni L. Violante, 2019. "Education Policy and Intergenerational Transfers in Equilibrium," Journal of Political Economy, University of Chicago Press, vol. 127(6), pages 2569-2624.
    13. Jeffrey T. Denning & Todd R. Jones, 2021. "Maxed Out?: The Effect of Larger Student Loan Limits on Borrowing and Education Outcomes," Journal of Human Resources, University of Wisconsin Press, vol. 56(4), pages 1113-1140.
    14. repec:hal:spmain:info:hdl:2441/527ht1a96e837pq2dubgo2953q is not listed on IDEAS
    15. Todd R. Jones & Daniel Kreisman & Ross Rubenstein & Cynthia Searcy & Rachana Bhatt, 2022. "The Effects of Financial Aid Loss on Persistence and Graduation: A Multi-Dimensional Regression Discontinuity Approach," Education Finance and Policy, MIT Press, vol. 17(2), pages 206-231, Spring.
    16. Brant Abbott & Giovanni Gallipoli & Costas Meghir & Giovanni L. Violante, 2013. "Education Policy�and Intergenerational Transfers in Equilibrium," Cowles Foundation Discussion Papers 1887R2, Cowles Foundation for Research in Economics, Yale University, revised May 2018.
    17. Anderson, Drew M., 2020. "When financial aid is scarce: The challenge of allocating college aid where it is needed most," Journal of Public Economics, Elsevier, vol. 190(C).
    18. Jeffrey T. Denning, 2019. "Born under a Lucky Star: Financial Aid, College Completion, Labor Supply, and Credit Constraints," Journal of Human Resources, University of Wisconsin Press, vol. 54(3), pages 760-784.
    19. repec:spo:wpmain:info:hdl:2441/527ht1a96e837pq2dubgo2953q is not listed on IDEAS
    20. Barr, Andrew, 2016. "Enlist or enroll: Credit constraints, college aid, and the military enlistment margin," Economics of Education Review, Elsevier, vol. 51(C), pages 61-78.
    21. Estelle Herbaut & Koen Geven, 2019. "What Works to Reduce Inequalities in Higher Education? A Systematic Review of the (Quasi-)Experimental Literature on Outreach and Financial Aid," Working Papers hal-03456943, HAL.
    22. Maria Ferreyra & Angelica Sanchez Diaz & Carlos Garriga, 2018. "A General Equilibrium Analysis of College Enrollment, Completion, and Labor Market Outcomes," 2018 Meeting Papers 1282, Society for Economic Dynamics.

    More about this item

    Keywords

    Higher education; Free college; Financial aid;
    All these keywords.

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • I21 - Health, Education, and Welfare - - Education - - - Analysis of Education

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:eecrev:v:168:y:2024:i:c:s0014292124001296. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/eer .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.