Who Pays for Free College? Crowding Out on Campus (Job Market Paper)
Abstract: Free college tuition has been central in the higher education policy debate. In Chile, a government elected in 2014 promised free university tuition by 2020. Most research on tuition subsidies focuses on enrollment gains for newly eligible students. This paper studies spillover of these policies to students currently receiving generous financial aid. I show that free tuition increases demand at selective programs, making these programs more competitive and pushing them out of reach for many low-income students who would have qualified otherwise. The argument uses a combination of reduced-form regression-discontinuity estimates of enrollment elasticities and a structural model that captures general equilibrium effects. Estimates using Chilean administrative records suggest that 20% of currently enrolled poor students will lose seats to wealthier students under a free-tuition policy. This adverse effect on low-income students could be mitigated by complementary policies such as capacity investments and means-testing. However, crowd-out remains significant unless aggressive policies to counteract it are enacted.
Labor Market Returns to Student Loans for University: Evidence from Chile (Link)
with Dante Contreras and Pablo Muñoz
Accepted, Journal of Labor Economics
Abstract: We study the labor market returns to a State guaranteed loan used to finance university degrees in Chile. Using a regression discontinuity design, we show that marginally eligible students forego vocational education in favor of universities but reduce their probability of graduation. Despite the fact that university loan-takers accumulate more student debt, their labor market outcomes are not different from those of ineligible students. We find suggestive evidence that the lower quality of receiving institutions accounts for these results. Finally, we extrapolate the effects away from the eligibility cutoff and show that supra-marginal students benefit from this policy.