Upstream and Downstream Impacts of College Merit-Based Financial Aid for Poor Students

We study the short-term direct and general equilibrium impacts of a large expansion of college financial aid awarded to high-performing poor students in Colombia. Using a regression discontinuity design, we find that financial... [ view full abstract ]

We study the short-term direct and general equilibrium impacts of a large expansion of college financial aid awarded to high-performing poor students in Colombia. Using a regression discontinuity design, we find that financial aid causes a 90 percent increase in immediate enrollment and a 16 percent increase in persistence, and induces students to sort across colleges. More broadly, demand for elite education expands among eligible students, significantly increasing selection on ability and class diversity at top private (but not public) colleges. Finally, the prospect of financial aid boosts test performance among poor high school seniors, especially at the top.