Response to federal financial aid policy: Evidence from the Higher Education Amendments of 1992

This dissertation examines how four-year colleges and families of college students react to changes in federal financial aid policy. In particular, I examine changes occurring as a result of the Higher Education Amendments of 1992 (HEA92), which took effect beginning in the 1992-1993 academic year. Key provisions of HEA92 were the exclusion of home equity from the federal needs analysis formula and the expansion of borrowing limits for federal subsidized loan aid.; Chapter 1 examines how families react to changes in federal aid policy. When HEA92 was enacted, families were told they could take advantage of the home equity exclusion to increase their aid eligibility by paying down their mortgages using non excluded assets. I find evidence that families of college or college-bound students shifted their assets in this manner. I also find that families in which the parents have college experience do more shifting of assets than do families in which the parents have never attended college.; In Chapter 2, I examine whether institutions respond to increases in federal aid by raising tuition and/or fees or by lowering institutional aid, lessening the impact of the aid increase. I use the exclusion of home equity in HEA92 to identify institutional response. Schools whose students had higher home equity saw larger increases in federal aid than other schools. I find that private institutions did not change tuition or room and board fees in response to increases in federal student loan aid, but increase the amount of institutional aid given out. Students appear to have received more than the full effect of the expansion of federal student loan programs.; Chapter 3 looks at how HEA92 affected the distribution of aid across student types. I use student-level data to examine how each of the main provisions in HEA92 affected different students. I find that low- and middle-income students who benefited from HEA92 saw increases in the probability of receiving grant aid, possibly crowding out low-income students who were not homeowners and did not benefit from HEA92.