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Finance

Dillon Fuchsman, Josh B. McGee, Gema Zamarro.

Adequately saving for retirement requires both planning and knowledge about available retirement savings options. Teachers participate in a complex set of different plan designs and benefit tiers, and many do not participate in Social Security. While teachers represent a large part of the public workforce, relatively little is known regarding their knowledge about and preparation for retirement. We administered a survey to a nationally representative sample of teachers through RAND’s American Teacher Panel and asked teachers about their retirement planning and their employer-sponsored retirement plans. We find that while most teachers are taking steps to prepare for retirement, many teachers lack the basic retirement knowledge necessary to plan effectively. Teachers struggled to identify their plan type, how much they are contributing to their plans, retirement eligibility ages, and who contributes to Social Security. These results suggest that teacher retirement reform may not be disruptive for teachers and that better, simpler, and clearer information about teacher retirement plans would be beneficial.

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Dylan Lukes, Christopher Cleveland.
Between 1935-1940 the Home Owners' Loan Corporation (HOLC) assigned A (minimal risk) to D (hazardous) grades to neighborhoods that reflected their lending risk from previously issued loans and visualized these grades on color-coded maps, which arguably influenced banks and other mortgage lenders to provide or deny home loans within residential neighborhoods. In this study, we leverage a spatial analysis of 144 HOLC-graded core-based statistical areas (CBSAs) to understand how HOLC maps relate to current patterns of school and district funding, school racial diversity, and school performance. We find that schools and districts located today in historically redlined D neighborhoods have less district per-pupil total revenues, larger shares of Black and non-White student bodies, less diverse student populations, and worse average test scores relative to those located in A, B, and C neighborhoods. Conversely, at the school level, we find that per-pupil total expenditures are better for those schools operating in previously redlined D neighborhoods. Consequently, these schools also have the largest shares of low-income students. Our nationwide results are, on the whole, consistent by region and after controlling for CBSA. Finally, we document a persistence in these patterns across time, with overall positive time trends regardless of HOLC security rating but widening gaps between D vs. A, B, and C outcomes. These findings suggest that education policymakers need to consider the historical implications of redlining and past neighborhood inequality on neighborhoods today when designing modern interventions focused on improving the life outcomes of students of color and students from low-socioeconomic backgrounds.

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Matthew P. Steinberg, Haisheng Yang.

Principals shape the academic setting of schools. Yet, there is limited evidence on whether principal professional development improves schooling outcomes. Beginning in 2008-09, Pennsylvania’s Inspired Leadership (PIL) induction program required that newly hired principals complete targeted in-service professional development tied to newly established state leadership standards within five years of employment. Using panel data on all Pennsylvania students, teachers, and principals, we leverage variation in the timing of PIL induction across principal-school cells and employ difference-in-differences and event study strategies to estimate the impact of PIL induction on teacher and student outcomes. We find that PIL induction increased student math achievement through improvements in teacher effectiveness, and that the effects of PIL induction on teacher effectiveness were concentrated among the most economically disadvantaged and urban schools in Pennsylvania. Principal professional development had the greatest impact on teacher effectiveness when principals completed PIL induction during their first two years in the principalship. We also find evidence that teacher turnover declined in the years following the completion of PIL induction. We discuss the implications of our findings for principal induction efforts.

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C. Kirabo Jackson, Claire Mackevicius.

We examine all known "credibly causal" studies to explore the distribution of the causal effects of public K-12 school spending on student outcomes in the United States. For each of the 31 included studies, we compute the same marginal spending effect parameter estimate. Precision-weighted method of moments estimates indicate that, on average, a $1000 increase in per-pupil public school spending (for four years) increases test scores by 0.0352 standard deviations, high school graduation by 1.92 percentage points, and college-going by 2.65 percentage points. These pooled averages are significant at the 0.0001 level. When benchmarked against other interventions, test score impacts are smaller than those on educational attainment -- suggesting that test-score impacts understate the value of school spending. 

The benefits to marginal capital spending increases take about five years to materialize, and are about half as large as (and less consistently positive than) those of non-capital-specific spending increases. The marginal spending impacts for all spending types are less pronounced for economically advantaged populations -- though not statistically significantly so. Consistent with a cumulative effect, the educational attainment impacts are larger with more years of exposure to the spending increase.  Average impacts are similar across a wide range of baseline spending levels and geographic characteristics -- providing little evidence of diminishing marginal returns at current spending levels.

To assuage concerns that pooled averages aggregate selection or confounding biases across studies, we use a meta-regression-based method that tests for, and removes, certain biases in the reported effects. This approach is straightforward and can remove biases in meta-analyses where the parameter of interest is a ratio, slope, or elasticity. We fail to reject that the meta-analytic averages are unbiased. Moreover, policies that generate larger increases in per-pupil spending tend to generate larger improvements in outcomes, in line with the pooled average. 

To speak to generalizability, we estimate the variability across studies attributable to effect heterogeneity (as opposed to sampling variability). This heterogeneity explains between 76 and 88 percent of the variation across studies. Estimates of heterogeneity allow us to provide a range of likely policy impacts. Our estimates suggest that a policy that increases per-pupil spending for four years will improve test scores and/or educational attainment over 90 percent of the time. We find evidence of small possible publication bias among very imprecise studies, but show that any effects on our precision-weighted estimates are minimal.

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Oded Gurantz, Ryan Sakoda, Shayak Sarkar.

This paper examines how financial aid reform based on postsecondary institutional performance impacts student choice. Federal and state regulations often reflect concerns about the private, for-profit sector's poor employment outcomes and high loan defaults, despite the sector's possible theoretical advantages. We use student level data to examine how eliminating public subsidies to attend low-performing for-profit institutions impacts students' college enrollment and completion behavior. Beginning in 2011, California tightened eligibility standards for their state aid program, effectively eliminating most for-profit eligibility. Linking data on aid application to administrative payment and postsecondary enrollment records, this paper utilizes a differences-in-differences strategy to investigate students' enrollment and degree completion responses to changes in subsidies. We find that restricting the use of the Cal Grant at for-profit institutions resulted in significant state savings but led to relatively small changes in students' postsecondary trajectories. For older, non-traditional students we find no impact on enrollment or degree completion outcomes. Similarly, for high school graduates, we find that for-profit enrollment remains strong. Unlike the older, non-traditional students, however, there is some evidence of declines in for-profit degree completion and increased enrollment at community colleges among the high school graduates, but these results are fairly small and sensitive to empirical specification. Overall, our results suggest that both traditional and non-traditional students have relatively inelastic preferences for for-profit colleges under aid-restricting policies.

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Kenneth A. Shores, Christopher A. Candelaria, Sarah E. Kabourek.

Sixty-seven school finance reforms (SFRs), a combination of court-ordered and legislative reforms, have taken place since 1990; however, there is little empirical evidence on the heterogeneity of SFR effects. In this study, we estimate the effects of SFRs on revenues and expenditures between 1990 and 2014 for 26 states. We find that, on average, per pupil spending increased, especially in low-income districts relative to high-income districts. However, underlying these average effect estimates, the distribution of state-level effect sizes ranges from negative to positive---there is substantial heterogeneity. When predicting SFR impacts, we find that multiple state-level SFRs, union strength, and some funding formula components are positively associated with SFR effect sizes in low-income districts. We also show that, on average, states without SFRs adopted funding formula components and increased K-12 state revenues similarly to states with SFRs.

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Michelle L. Lofton, Martin F. Lueken.

Education savings accounts (ESAs) are education funding mechanisms that allow for families to receive a deposit of public funds to a government-authorized savings account. Using student-level longitudinal data, this paper examines how families participating in the Florida Gardiner Scholarship Program use education savings account funds. Results indicate that families use an increasing proportion of ESA funds the longer students remain in the program. The longer students remain in the program, the share of ESA funds devoted to private school tuition decreases while expenditure shares increase for curriculum, instruction, tutoring, and specialized services. Students in rural areas not only use a greater portion of their ESA funds than families in urban and suburban areas, but they also spend smaller portions of their funds on tuition and appear to customize more.

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Mingyu Chen.

Between 2005 and 2016, international enrollment in US higher education nearly doubled. I examine how trade shocks in education affect public universities' decision-making. I construct a shift-share instrument to exploit institutions' historical networks with different origins of international students, income growth, and exchange-rate fluctuations. Contrary to claims that US-born students are crowded out, I find that international students increase schools' funding via tuition payments, which leads to increased in-state enrollment and lower tuition prices. Schools also keep steady per-student spending and recruit more students with high math scores. Lastly, states allocate more appropriations to universities that attract fewer international students.

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Robert M. Costrell.

The ongoing crisis in teacher pension funding has led states to consider various reforms in plan design, to replace the traditional benefit formulas, based on years of service and final average salary (FAS).  One such design is a cash balance (CB) plan, long deployed in the private sector, and increasingly considered, but rarely yet adopted for teachers.  Such plans are structured with individual 401(k)-type retirement accounts, but with guaranteed returns.  In this paper I examine how the nation’s first CB plan for teachers, in Kansas, has played out for system costs, and the level and distribution of individual benefits, compared to the FAS plan it replaced.  My key findings are:  (1) employer-funded benefits were modestly reduced, despite the surface appearance of more generous employer contribution matches; (2) more importantly, the cost of the pension guarantee, which is off-the-books under standard actuarial accounting, was reduced quite substantially.  In addition, benefits are more equitably distributed between short termers and career teachers than under the back-loaded structure of benefits characteristic of FAS plans.   The key to the plan’s cost reduction is that the guaranteed return approximates a low-risk market return, considerably lower than the assumed return on risky assets.   

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Douglas N. Harris, Jonathan Mills.

We provide theory and evidence about how the design of college financial aid programs affects a variety of high school, college, and life outcomes. The evidence comes from an eight-year randomized trial where 2,587 high school ninth graders received a $12,000 merit-based grant offer. During high school, the program increased their college expectations and non-merit effort but had no effect on merit-related effort (e.g., GPA). After high school, the program increased graduation from two-year colleges only, apparently because of the free college design/framing in only that sector. But we see no effects on incarceration or teen pregnancy. Overall, the results suggest that free college affects student outcomes in ways similar to what advocates of free college suggest and making aid commitments early, well before college starts, increases some forms of high school effort. But we see no evidence that merit requirements are effective. Both the standard human capital model and behavioral economics are required to explain these results.

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