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Guaranteed Financial Aid for College

Problem

When all expenses are added up, university costs in China can reach 10,000 to 12,000 yuan per year. To pay for four years of college, a poor family living at or close to the poverty line must borrow and save more than 60 years of per capita income. While there is more aid and more scholarships available today than there were five years ago, it is not true—far from it—that whoever needs financial aid can receive it.

Making matters worse, even though there are some programs to help poor, rural students with their funding needs, many rural students do not know about these programs and, thus, are often unable to take advantage of them.    

Even when students are aware of financial aid policies, in most universities first year students are not awarded scholarships until their second semester--meaning that students cannot actually get access to financial aid until after they enter university. This not only means families have to find some way to finance the first year of college, it also means that there is a lot of uncertainty for students going through the process. When students are making their choices of where to go to college and what to major in, they do not know their financial aid package and have very little information on the prospects.

The result: poor, rural students may make decisions in this environment of uncertainty that might be suboptimal in terms of their college/major choice. In other words, poor, rural students may distort their college choices and choose to go to lower cost (and often lower quality) schools without regard to their true interests and capacities.

Attending university is a huge financial burden for many of these students

Goals

Our goal is to understand whether need-based financial aid, provided to high school students in advance of the first year of university, can help them overcome the financial uncertainties and barriers inherent in their choices regarding higher education. In other words, do poor students who have been given a commitment of financial aid prior to the first year of university make different choices in the college application process?

A second goal is to see whether offering financial aid to poor students in advance of the university entrance exam incentivizes improved performance and a higher success rate in college admissions.

Approach

Sampling

To understand this issue, we conduct a Randomized Controlled Trial. We first randomly selected 8 counties in Shaanxi Province in which to run the experiment. There were 10 high schools in the 8 counties, from which we randomly selected 1 advanced third-year class and 1 normal third-year class at each high school, for a total of 20 classes. We surveyed every student in the 20 classes (1200 students in total) and then ranked them from poorest to wealthiest, based on their family’s household assets. The 600 sernior year students who we ranked as being the poorest across the 20 classes were chosen as our "poor students sample." 

After this initial survey, we randomly selected 248 students from our poor students sample to receive the financial aid intervention. REAP analyzed data collected on the randomly selected award winners and non-winners and determined that, as a whole, each group was identical on average in observable characteristics. 

Treatment

All 248 students in this "treatment group" were given a commitment letter promising a scholarship for their first year of university, conditional on the student passing the university entrance exam to gain entrance to a level-1 (yiben) or level-2 (erben) university. 

In order to explore whether different timing and different amounts of the first-year tuition awards lead to different impacts, the students were then randomly assigned to different treatment sub-groups, as follows:

1. Full tuition; notified early:

61 students were randomly selected for a 5000 yuan scholarship and notified in March, 2008 (more than three months before the university entrance exam and the deadline for submitting their official application choices for universities and majors)  

2. Half tuition; notified early:

62 students were randomly selected for a 2500 yuan scholarship and notified in March, 2008 (more than three months before the university entrance exam and the following deadline for submitting their official application choices (for universities and majors)  

3. Full tuition:

63 students were randomly selected by REAP for a 5000 yuan scholarship and notified in June, 2008 (right after they took the university entrance exam, several days before they had to submit their official application choices for universities and majors)  

4. Half tuition:

65 students were randomly selected by REAP for a 2500 yuan scholarship and notified in June, 2008 (right after they took the university entrance exam, several days before they had to submit their official choices/application for universities and majors). 

Implementation

To read a detailed report on REAP’s implementation of the IET/CORE Scholarship Program, please see Implementation Report March 2008 and the follow up Implementation Report July 2008.

Evaluation

REAP then followed up with the high schools to collect the college application choice forms (zhi yuan) for the treatment and control groups to evaluate the impacts of the scholarship program. REAP also examined whether the impacts varied due to the different amounts and timing of the awards, and whether the impacts varied based on baseline student characteristics. 

 

 

Department fair where students can learn more about different majors offered at a university. Will their decision be affected by the amount and timing of financial aid?

Results

Our results demonstrate that if offers for guaranteed financial aid are made early enough and they are large enough, students are able to make less distorted decisions when deciding on what college to attend.

Despite the critical importance of this financial aid issue for the educational policy in both developed and developing countries, there is surprisingly little rigorous evidence addressing it. To our knowledge, this paper provides the first experimental evaluation of the impact of guaranteed financial aid (also known as ECFA--Early Commitment of Financial Aid) on the decision to attend college in China or any other context. 

Funding

Funding for the scholarship awards is provided by the IET Foundation. Funding for the evaluation is provided by Stanford University