The Impact of Institutional Grant Aid on College Choice

The influence of institutional grant aid on the enrollment behavior of college students has been the focal point of several empirical studies during the past decade. Yet, the extent to which this multibillion dollar per year grant-allocation process influences the matriculation choices of students deciding between multiple institutions remains unclear. Though several studies have attempted to address this issue, each has limitations that render their conclusions subject to scrutiny.;In this study, I use a causal identification strategy to estimate the impact of institutional grant aid on student college choice. To achieve this, I exploit exogenous differences in institutional policies regarding the treatment of home equity in grant-aid allocation. Because institutional grant aid is generally not awarded randomly, the college-estimated value of an applicant's family's home equity can serve as an instrumental variable from which I may identify the causal relationship between institutional grant aid and college choice.;I find that an additional ;The policy implications of my findings are as follows. As it stands, government aid is not meeting the financial needs of lower-income college-bound students. The sensitivity of lower-income students to grant aid in the college-choice process warrants a reversal of the national trend in which need-based aid for lower-income students is being replaced by merit-based aid for higher-income students. Finally, I suggest that lower-income students, on average, may possess a more limited understanding of the college financial aid processes' subtleties, which impacts adversely the total grant aid that these students receive.