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 (with Dante Contreras and Pablo Muñoz)
Abstract: This paper studies the labor market returns to a state guaranteed loan (SGL) used to finance university degrees. Using administrative data from Chile and a regression discontinuity design, we show that marginally eligible students who enrolled at a university thanks to the SGL attended it for 5 years, foregoing 3 years of vocational education and accumulating additional 14 thousand dollars in student debt. Nine years after high school graduation, these students exhibit no gains in terms of wages, employment, type of contract, or type of employer; however, extrapolation away from the cutoff shows that students who qualify more easily for this loan benefit from it. We provide suggestive evidence that institutional quality partially accounts for the null labor market effects for marginal students.