Three essays examining financial support for post-secondary education

Date

2022-05

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Abstract

Given the soaring costs of higher education, financial aid is helpful to reduce the direct costs of college. Sources of financial aid include grants, scholarships, work-study jobs, loans, and aid from the federal government, state government, private entities, and universities themselves. Receiving financial aid lowers the out-of-pocket tuition and fees for postsecondary education and provides an opportunity to acquire greater human capital. The theory of human capital states that individuals will invest in an additional unit of human capital as long as the marginal benefit of that unit is greater than or equal to its marginal cost. Student loans are the most common financial support for college students (Ma & Pender, 2019). Previous research finds that debts are associated negatively with life satisfaction (Xiao et al.,2009; Aboagye & Jung, 2018). However, educational attainment, which can be achieved with student loans, is associated positively with life satisfaction (Kim & Chatterjee, 2019; Salinas-Jimenez, 2013). Therefore, the goal of the first paper is to distinguish whether the positive association of education or the negative association of debt is the dominant effect on short term life satisfaction. The first essay utilizes the 2011, 2013, 2015, 2017, and 2019 waves of the Panel Study of Income Dynamics to determine the association between student loans and individuals’ current life satisfaction. The results show that a change of student loans is associated with a change in life satisfaction. Financial aid is helpful to increase the college enrollment rate and may motivate students to acquire additional degrees (Kim & Chatterjee, 2019). Receiving financial aid (scholarships and tuition waivers) allows students to allocate more time to school activities (Bozick, 2007). Furthermore, a higher educational degree yields a higher hourly wage (Pyne & Grodsky, 2020; Mertens & Robken, 2012). However, financial aid such as student loans, which has to be paid off, may make students feel stressful and may allocate less time to academic activities (Quadlin & Rudel, 2015). In order to analyze whether financial aid (have to be repaid vs. those that do not have to be repaid) is helpful to promote a higher educational degree, the second study uses the National Longitudinal Surveys of Freshmen (NLSF) to clarify the association between the types of financial support and the highest degree students expected to earn. A recursive model is estimated via “cmp” in STATA. The results demonstrate that students with family support and work-study have a higher probability of enrolling in a bachelor’s degree or higher because receiving these types of financial aid, which do not have to be repaid, lowers the direct costs of college. However, students who finance with personal savings have a higher probability of expecting to obtain less than a bachelor’s degree. Student loans also involve negative outcomes, including delaying the purchase of a home (Mezza et al., 2020), delaying first marriage (Gicheva, 2016), or spending more time in the job market (Gross et al., 2009). The third essay estimates the associations between student debts and employment (took a job outside their field of study, took a less desirable job, took more than one job, or worked more hours), homeownership, and marriage decisions in the short run. The third study utilizes the Educational Longitudinal Study of 2002, which is administered by the U.S. Department of Education and concludes that students with student loans have a higher probability of working more hours and delaying the first marriage age. However, the results do not show a statistically significant association between homeownership and student loans. These three essays have implications for financial planners and students. Financial planners may suggest that clients save funds for children’s education because individuals with student loans have lower short-term utility and delay age at first marriage. Students may prefer to have financial aid from scholarships, waived tuition due to TA or RA positions, or college work-study, because receiving this support lowers the cost of postsecondary education and leads to a higher probability of enrolling in a higher education program. In addition, receiving financial support from families mitigates the repayment burden of debt; thus, financial planners may encourage parents to save education funding for their children because individuals may spend additional time in the labor market to decrease utility during a short time.

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Student Loans, Human Capital

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