Nav: Home

Government grants deliver highest returns for college financing, says study

February 03, 2020

Merit-based grants are a government's best bet for providing effective student aid for long-term economic growth - increasing both welfare (measured in terms of long-term well-being outcomes) and efficiency, according to a new joint study from the University of British Columbia, Queen's, Princeton and Yale. The study focuses on current education policy in the United States, and finds that the current system of grants and loans has significant long-term value.

Figures from 2012 show the U.S. federal government spends around $150 billion on grants and loans annually. Given such a sizeable investment, the researchers wanted to test the effectiveness of such spending and found the current amount of federal aid is extremely valuable.

"We found that a $1000 increase in grants per year for every student, which corresponds to roughly a 50 per cent increase on average, would lead to a long-run gain in GDP of close to one per cent," said study co-author Giovanni Gallipoli, an associate professor at the Vancouver School of Economics at UBC. "This is a comparatively large return on investment."

The study finds grants remain the most effective at improving the country's overall welfare, more so than loans or tax cuts. The study's economic modelling shows that one third of ability-tested grant recipients make an extra $2,300 per year in earnings over their entire careers, confirming the high return per dollar spent.

The researchers say there will be additional benefits if grant programs are further expanded, especially those based on academic performance and merit.

The researchers argue ability-tested grants work best because they prioritize those students who are likely to have the highest returns to college attendance and who are most likely to complete a college education, irrespective of family and social background. These students have their tuition funded, based on grades and test scores, deriving large gains from their degree in the labour market.

The researchers do recognize that this method may have potential flaws because students from well-off families could still have an advantage to receive grants based on performance. These students would have greater access to different supports or resources, like tutors or mentors, to advance their cognitive skills that are simply not available to working class children with the same or similar abilities. For this reason, the researchers do see a significant benefit in keeping a portion of federal aid based on need intact.

"This approach also benefits non-recipients, through overall economic growth," said Gallipoli. "One key finding of the study is that expanding post-secondary education for any given generation reduces the cost of human capital accumulation for future generations to come."

Removing tuition grants completely would result in a drop in college attainment of more than three percentage points, and reduce output and welfare by two and three per cent respectively.

"Without grants, the student body would possess lower skills, and the system would become much more reliant on parental wealth and transfers," said Gallipoli.

Gallipoli also said the study's findings could have implications for education policy outside of the U.S., including here in Canada.

"The U.S. system, through a mix of grants and subsidized loans, funds education for students from very poor backgrounds quite well, provided they do well academically," he said. "In Canada, similar funding doesn't really exist, nor is it as readily available or as expansive to such a group."
The study, Education Policy and Intergenerational Transfers in Equilibrium, was published in December 2019 in The Journal of Political Economy. Gallipoli's co-authors include Brant Abbott at Queen's University, Giovanni Violante at Princeton University, and Costas Meghir at Yale University.

University of British Columbia

Related Economic Growth Articles:

Economic growth is incompatible with biodiversity conservation
A study involving more than 20 specialists in conservation ecology and ecological economics highlights the contradiction between economic growth and biodiversity conservation.Adopting limits to international trade in resources or reducing and sharing the work, are some of the seven alternative proposals that the article notes to stop biodiversity loss.
The physics that drives periodic economic downturns
A professor at Duke University says that the way spilled milk spreads across the floor can explain why economic downturns regularly occur.
China's carbon emissions growth slows during new phase of economic development
Scientists from from the Academy of Mathematics and Systems Science, together with collaborators, recently revealed that China's annual carbon emissions growth declined significantly from 10% during the 2002-2012 period to 0.3% during the period from 2012-2017.
Study suggests economic growth benefits wildlife but growing human populations do not
Analysis shows that while national-level economic growth and social development -- including more women in government -- are associated with more abundant wildlife, growing human populations are linked to wildlife decline.
Renewable and nonrenewable energy in Myanmar's economic growth
An international group of scientists including a researcher from Ural Federal University developed a mathematical model that describes the influence of regenerative and non-regenerative energy sources on the economic growth of Myanmar.
Colonial policies can result in economic growth
A new study in the Review of Economic Studies suggests that areas where Dutch colonizers built sugar factories in the 19th century are more developed today.
The Lancet Diabetes & Endocrinology: Economic growth linked to reduction in stunting and thinness, but rise in overweight and obesity in Chinese children and adolescents
The first study to evaluate the effect of economic growth on malnutrition in all its forms has found that, while stunting and thinness have ameliorated in recent years, a four-fold increase in overweight and obesity among children and adolescents occurred in China between 1995 and 2014, with around one in five children and adolescents now either overweight or obese.
Study: Democracy fosters economic growth
A new study co-authored by an MIT economist shows that when it comes to growth, democracy significantly increases development.
How private households can stall economic growth
How quickly the economy recovers after an economic shock also depends on the behavior of private households.
CO2 emissions in Russia go up in line with economic growth up until a certain point
Environmental pollution in Russia increases along with economic growth, but only until it reaches a certain threshold, from where it starts to decrease, demonstrates a recent study published in the open-access Russian Journal of Economics by Prof.
More Economic Growth News and Economic Growth Current Events

Trending Science News

Current Coronavirus (COVID-19) News

Top Science Podcasts

We have hand picked the top science podcasts of 2020.
Now Playing: TED Radio Hour

Listen Again: Reinvention
Change is hard, but it's also an opportunity to discover and reimagine what you thought you knew. From our economy, to music, to even ourselves–this hour TED speakers explore the power of reinvention. Guests include OK Go lead singer Damian Kulash Jr., former college gymnastics coach Valorie Kondos Field, Stockton Mayor Michael Tubbs, and entrepreneur Nick Hanauer.
Now Playing: Science for the People

#562 Superbug to Bedside
By now we're all good and scared about antibiotic resistance, one of the many things coming to get us all. But there's good news, sort of. News antibiotics are coming out! How do they get tested? What does that kind of a trial look like and how does it happen? Host Bethany Brookeshire talks with Matt McCarthy, author of "Superbugs: The Race to Stop an Epidemic", about the ins and outs of testing a new antibiotic in the hospital.
Now Playing: Radiolab

Dispatch 6: Strange Times
Covid has disrupted the most basic routines of our days and nights. But in the middle of a conversation about how to fight the virus, we find a place impervious to the stalled plans and frenetic demands of the outside world. It's a very different kind of front line, where urgent work means moving slow, and time is marked out in tiny pre-planned steps. Then, on a walk through the woods, we consider how the tempo of our lives affects our minds and discover how the beats of biology shape our bodies. This episode was produced with help from Molly Webster and Tracie Hunte. Support Radiolab today at