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Finance

Kenneth A. Shores, Hojung Lee, Elinor Williams.

Levels of governance (the nation, states, and districts), student subgroups (racially and ethnically minoritized and economically disadvantaged students), and types of resources (expenditures, class sizes, and teacher quality) intersect to represent a complex and comprehensive picture of K-12 educational resource inequality. Drawing on multiple sources of the most recently available data, we describe inequality in multiple dimensions. At the national level, racially and ethnically minoritized and economically disadvantaged students receive between $30 and $800 less in K-12 expenditures per pupil than White and economically advantaged students. At the state and district levels, per-pupil expenditures generally favor racially and ethnically minoritized and economically disadvantaged students compared to White and economically advantaged students. Looking at nonpecuniary resources, minoritized and economically disadvantaged students have smaller class sizes than their subgroup counterparts in the average district, but these students also have greater exposure to inexperienced teachers. We see no evidence that district-level spending in favor of traditionally disadvantaged subgroups is explained by district size, average district spending, teacher turnover, or expenditures on auxiliary staff, but Black and Hispanic spending advantage is correlated with the relative size of the Black and Hispanic special education population.

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Monnica Chan, Zachary Mabel, Preeya Pandya Mbekeani.

Performance-based funding models for higher education, which tie state support for institutions to performance on student outcomes, have proliferated in recent decades. Some states have designed these policies to also address educational attainment gaps by including bonus payments for traditionally low-performing groups. Using a Synthetic Control Method research design, we examine the impact of these funding regimes on race-based completion gaps in Tennessee and Ohio. We find no evidence that performance-based funding narrowed race-based completion gaps. In fact, contrary to their intended purpose, we find that performance-based funding widened existing gaps in certificate completion in Tennessee. Across both states, the estimated impacts on associate degree outcomes are also directionally consistent with performance-based funding exacerbating racial inequities in associate degree attainment.

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Kevin J. Mumford.

Financing college expenses through an income share agreement (ISA) is an arrangement where the student agrees to pay a fixed percentage of future earned income for a designated period of time in exchange for college funding. Using administrative and survey data for all eligible applicants to a university ISA program, I estimate the adverse selection into the ISA and provide preliminary estimates of the moral hazard for ISA participants. Identification of adverse selection comes from being able to observe the full set of eligible students who apply to the program. There is evidence of selection on the offered income share rate (which is determined by the student’s major) as well as on parent characteristics, though not parent income. Surprisingly, there is no evidence of adverse selection on student ability as measured by SAT score and college grades. I find no differential selection on other student characteristics including demographics and measures of debt aversion, risk aversion, and time preference. Controlling for observable factors, ISA participation increases the likelihood of college graduation by 3 percentage points and decreases starting salary by $5,000 on average.

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Claire McMorris, David S. Knight.

The Coronavirus Aid, Relief and Economic Security (CARES) Act passed by Congress in 2020 included significant aid to state education systems. These included direct aid to K-12 districts and higher education institutions, and funds to be used at the discretion of Governors through the Governor’s Emergency Education Relief Fund (GEER). We examine the factors influencing where and how GEER funding was distributed across state K-12 systems and what inequities were introduced in its spending. Using a mixed methods analysis of state GEER spending plans and district-level finance data, we focus specifically on how governors sought to target schools serving disadvantaged student groups. We find that several state leaders decided to send their GEER funds to school districts via funding formulas, and that some Governors made decisions to direct their GEER funds towards certain student groups. State spending patterns were not strongly related to governor political ideology or the states’ existing funding formulas or inter-district resource allocation patterns. We discuss the implications of this policy related to two state case examples, California and New York, and provide insight for future education stimulus funding proposals.

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Devon L. Graves.

Every year millions of students seeking access to federal financial aid complete the Free Application for Federal Student Aid (FAFSA) application which grants an estimated $234 billion in federal aid in the 2020-21 academic year. Upon receiving students’ FAFSA, the U.S. Department of Education selects some students for income verification, a process in which educational institutions check the accuracy of the information students filled out on the FAFSA. I conducted semi-structured interviews with 17 Latinx community college students to identify barriers in the verification process. Using Critical Race Theory, I contend the verification process reflects and upholds institutional racism within the financial aid process through three barriers. Latinx students experience concern and confusion upon receiving notification of verification selection, difficulty locating requested documentation and acquiring parents’ signature, and undergo a lengthy review of their verification forms which delays receipt of their financial aid.

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Emily Rauscher, Yifan Shen.

The equity-efficiency tradeoff and cumulative return theories predict larger returns to school spending in areas with higher previous investment in children. Equity – not efficiency – is therefore used to justify progressive school funding: spending more in communities with fewer financial resources. Yet it remains unclear how returns to school spending vary across areas by previous investment. Using county-level panel data 2009-2018 from the Stanford Education Data Archive, the F-33 finance survey, and National Vital Statistics, we estimate achievement returns to school spending and test whether returns vary between counties with low and high levels of initial human capital (measured as birth weight), child poverty, and previous spending. Spending returns are higher among counties with low previous investment (counties that also have a high percent of Black students). Evidence of diminishing returns by previous investment documents another way that schools increase equality and establishes another argument for progressive school funding: efficiency.

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Christopher A. Candelaria, Shelby M. McNeill, Kenneth A. Shores.

School finance reforms are not well defined and are likely more prevalent than the current literature has documented. Using a Bayesian changepoint estimator, we quantitatively identify the years when state education revenues abruptly increased for each state between 1960 and 2008 and then document the state-specific events that gave rise to these changes. We find 108 instances of abrupt increases in state education revenues across 43 states; about one-quarter of these changes had been undocumented. Half of the abrupt increases that occurred post-1990 were preceded by litigation-prompted legislative activity, and Democrat-party control of a state increases the probability of a changepoint occurring by 8 percentage points.

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Min Sun, Christopher A. Candelaria, David Knight, Zachary LeClair, Sarah E. Kabourek, Katherine Chang.

Knowing how policy-induced salary schedule changes affect teacher recruitment and retention will significantly advance our understanding of how resources matter for K-12 student learning. This study sheds light on this issue by estimating how legislative funding changes in Washington state in 2018-19—induced by the McCleary court-ordered reform—affected teacher salaries and labor market outcomes. By embedding a simulated instrumental variables approach in a mixed methods design, we observed that local collective bargaining negotiations directed new state-level funding allocations toward certificated base salaries, particularly among more senior teachers. Variability in political power, priorities, and interests of both districts and unions led to greater heterogeneity in teacher salary schedules. Teacher mobility rate was reduced in the first year of the reform, and subsequently new hiring rate was reduced in the second year. Suggestive evidence indicates that a $1,000 salary increase would have larger effects on junior teachers’ hiring and their transfers between districts to a greater extent than late-career teachers.

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Cory Koedel, Trang Pham.

We study the conditional gender wage gap among faculty at public research universities in the U.S. We begin by using a cross-sectional dataset from 2016 to replicate the long-standing finding in research that conditional on rich controls, female faculty earn less than their male colleagues. Next, we construct a data panel to track the evolution of the wage gap through 2021. We show that the gap is narrowing. It declined by more than 50 percent over the course of our data panel to the point where by 2021, it is no longer detectable at conventional levels of statistical significance.

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Tammy Kolbe, Elizabeth Dhuey, Sara Menlove Doutre.

The formula used to allocate federal funding for state and local special education programs is one of the Individual with Disabilities Act’s most critical components. The formula not only serves as the primary mechanism for dividing available federal dollars among states, it also represents policymakers’ intent to equalize educational opportunities for students with disabilities nationwide. In this study, we evaluate the distribution of IDEA Part B(611) funding in the wake of changes to the formula that were instituted at the law’s 1997 reauthorization. We find that the revised formula generated large and concerning disparities among states in federal special education dollars. We find that, on average, states with proportionally larger populations of children and children living in poverty, children identified for special education, and non-White and Black children receive fewer federal dollars, both per pupil and per student receiving special education. We present policy simulations that illustrate how changes to the existing formula might improve the fairness and efficiency with which federal IDEA Part B funding is allocated to states.

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