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Finance

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 exploiting institutions' historical networks with different origins of international students, income growth, and exchange rate fluctuations. Contrary to the critics that US-born students are crowded out, I find international students increase schools' funding via tuition payments, leading 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 attracting fewer international students.

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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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Lois Miller, Minseon Park.

Many state governments impose tuition regulations on universities in pursuit of college affordability. How effective are these regulations? We study how universities' "sticker price'' and institutional financial aid change during and after tuition caps and freezes by leveraging temporal and geographic variation in the United States from 1990 to 2013. We find that listed tuition is lower than it would have been in the absence of the regulation by 6.3 (9.3) percentage points at four-year (two-year) colleges during the regulation. Meanwhile, the negative impact on institutional aid at four-year colleges during a tuition cap/freeze is nearly double (-11.3 percentage points) the impact on listed tuition, implying that universities adjust institutional aid in order to recoup some of their losses from the tuition cap/freeze. Effects are long-lasting at four-year institutions; two years after the regulation is lifted, tuition is 7.3 percentage points lower and institutional aid is 19.5 percentage points lower than it would have been without the regulation. Meanwhile at two-year colleges, tuition "catches up" so that by three years after the end of the regulation tuition is not statistically different from what it would have been in the absence of the regulation. Universities that are not research-intensive and universities that have a greater dependency on tuition revenue exhibit larger negative impacts on institutional aid with smaller impacts on "sticker price''. Our estimates suggest that tuition caps and freezes do not simply lower the prices that students pay for college and that the benefit of tuition regulations is unequally spread across types of universities and students.

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George Bulman, Robert Fairlie.

Enrollment increased slightly at both the California State University and University of California systems in fall 2020, but the effects of the pandemic on enrollment in the California Community College system are mostly unknown and might differ substantially from the effects on 4-year colleges. This paper provides the first analysis of how the pandemic impacted enrollment patterns and the academic outcomes of community college students using administrative college-level panel data covering the universe of students in the 116-college California Community College system. We find that community college enrolment dropped precipitously in fall 2020 – the total number of enrolled students fell by 4 percent in spring 2020 and by 15 percent in fall 2020 relative to the prior year. All racial and ethnic groups experienced large enrollment decreases in spring and fall 2020, but African-American and Latinx students experienced the largest drops at 17 percent in fall 2020. Enrollment fell the most for first-year students in the community college system, basic skills courses, and fields such as engineering/industrial technology, education, interdisciplinary studies, and art. There were smaller decreases for continuing students, academic courses transferable to four-year institutions, and business and science fields. Enrollment losses were felt throughout the entire community college system, and there is no evidence that having a large online presence in prior years protected colleges from these effects. In terms of course performance, there was a larger disruption to completion rates, withdrawal rates, and grades in spring 2020 than in fall 2020. These early findings of the effects of the pandemic at community colleges, which serve higher percentages of lower-income and minority students, have implications for policy, impending budgetary pressures, and future research.

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Dennis A. Kramer II, Christina Lamb, Lindsay C. Page.

We explore the role of defaults and choice architecture on student loan decision-making, experimentally testing the impact pre-populating either decline or accept decisions compared to an active choice, no pre-population, decision. We demonstrate that the default choice presented does influence student loan borrowing decisions. Specifically, compared to active choice, students presented within a pre-populated decline decision were almost five percent less likely to accept all packaged loans and borrowed between 4.6 and 4.8 percent less in federal educational loans. The reductions in borrowing appears to be concentrated within unsubsidized loans with those assigned to the opt-in condition borrowing 8.3 percent less in unsubsidized loans. These changes in borrowing did not induce substitution towards private or Parent PLUS loans nor did they negatively impact enrollment, academic performance, or on-campus work outcomes in the same academic year.

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Mark J. Chin, Lena Shi.
Given states’ balanced budget requirements, investment decisions often involve trade-offs between policymakers’ budget priorities. How does political party control affect investment decisions and outcomes? Using a regression discontinuity design based on close state elections between 1984-2013, we find that marginally Democratic legislatures spend more on higher education in states with higher unemployment and poverty rates. However, Democrats spend less on K-12 education, particularly in more liberal states. Democrats do not appear to decrease K-12 spending to increase higher education, but rather, to fund welfare. Gains in local revenue offset party differences in K-12 spending such that current expenditures in K-12 increase and student-teacher ratios decrease under Democrats, though not enough to change attendance rates. Increased welfare spending under Democrats appear consistent with their redistributive goals that also benefit their constituents, as health insurance coverage for non-White children also expand. Altogether our results indicate that policymakers make spending decisions while considering constituents’ needs and the availability of external budget sources.

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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 "mortgage security" and visualized these grades on color-coded maps used by 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 historic HOLC maps relate to current patterns of school funding, racial diversity, and performance. We find districts and schools located today in historically redlined neighborhoods have less district-level per-pupil 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. These nationwide results are consistent by region and when controlling for CBSA. Finally, we document a persistence in these patterns across time, with overall positive time trends regardless of HOLC grade 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 life outcomes of students of color.

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C. Kirabo Jackson, Claire Mackevicius.

We use estimates across all known "credibly causal" studies to examine the distributions of the causal effects of public K12 school spending on test scores and educational attainment in the United States. Under reasonable assumptions, for each of the 31 included studies, we compute the same parameter estimate. Method of moments estimates indicate that, on average, a $1000 increase in per-pupil public school spending (for four years) increases test scores by 0.044 standard deviations, high-school graduation by 2.1 percentage points, and college-going by 3.9 percentage points. The pooled averages are significant at the 0.0001 level. When benchmarked against other interventions, test score impacts are much smaller than those on educational attainment -- suggesting that test-score impacts understate the value of school spending. The benefits to capital spending increases take about five-to-six years to materialize, but after this, one cannot reject that the average marginal effects differ across capital and non-capital spending types. The marginal spending impacts are much less pronounced for economically advantaged populations. 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 -- providing little evidence of diminishing marginal returns at current spending levels.

To speak to generalizability, we estimate the variability across studies attributable to effect heterogeneity (as opposed to sampling variability). This heterogeneity explains about 40 and 70 percent of the variation across studies for educational attainment and test scores, respectively, which allows us to provide a range of likely policy impacts. A policy that increases per-pupil spending for four years will improve test scores 92 percent of the time, and educational attainment even more often.  We find suggestive evidence consistent with small possible publication bias, but demonstrate that any effects on our estimates are minimal.

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Eric Brunner, Ben Hoen, Joshua Hyman.

We examine the impact of wind energy installation on school district finances and student achievement using data on the timing, location, and capacity of the universe of U.S. installations from 1995 through 2017. Wind energy installation substantially increased district revenues, causing large increases in capital outlays, but only modest increases in current spending, and little to no change in class sizes or teacher salaries. We find zero impact on student test scores. Using administrative data from Texas, the country’s top wind energy producer, we find zero impact of wind energy installation on high school completion and other longer-run student outcomes.

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George Bulman, Robert Fairlie, Sarena Goodman, Adam Isen.

We examine U.S. children whose parents won the lottery to trace out the effect of financial resources on college attendance. The analysis leverages federal tax and financial aid records and substantial variation in win size and timing. While per-dollar effects are modest, the relationship is weakly concave, with a high upper bound for amounts greatly exceeding college costs. Effects are smaller among low-SES households, not sensitive to how early in adolescence the shock occurs, and not moderated by financial aid crowd-out. The results imply that households derive consumption value from college and household financial constraints alone do not inhibit attendance.

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