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A FINANCIAL AID EXPERIMENT

The Role of Simplification and Information in College Decisions:. A FINANCIAL AID EXPERIMENT. Eric P. Bettinger, Stanford University Bridget Long, Harvard U Phil Oreopolous, U Toronto Lisa Sanbonmatsu, NBER U Michigan December 2009.

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A FINANCIAL AID EXPERIMENT

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  1. The Role of Simplification and Information in College Decisions: A FINANCIAL AID EXPERIMENT Eric P. Bettinger, Stanford University Bridget Long, Harvard U Phil Oreopolous, U Toronto Lisa Sanbonmatsu, NBER U Michigan December 2009 With grants from the Gates Foundation, National Science Foundation, Institute of Education Sciences, Kauffman Foundation, Spencer Foundation, and MacArthur Foundation as well as additional support from H&R Block, Inc.

  2. College Affordability • High income students are 30 percentage points more likely to enroll in college than low-income students. • 406,000 students who were qualified for college could not attend a four-year college in 2002 for financial or other barriers. • 168,000 qualified students could not attend college at all in 2002.

  3. Postsecondary Enrollment Rates by Income Quintile, 1983-2005 Highest Income Quintile Lowest Income Quintile

  4. Why are there Gaps in College Access by Family Income? 1. Differences inAcademic Preparation 2. Financial Resources/Aid (Van der Klauuw 2002; Kane 2003; Seftor and Turner 2002) 3. Information and Complexity: Is accurate info accessible in a simple and easily-usable fashion? • Aid Policy (Dynarski 2000, 2002; Cornwell, Mustard, and Sridhar 2006) • Other Social Programs (Currie 2004) • Behavioral Economics and the importance of the default (Madrian and Shea 2001; Beshears, Laibson, Choi, and Madrian 2006)

  5. Concerns about the Current Financial Aid System (1) Misinformation among families • Individuals, particularly low-income students, often greatly overestimate the cost of higher education (Horn, Chen, and Chapman 2003) (2) Low Visibility of the FAFSA • Gatekeeper to federal, state, and institutional aid • In 2000, approx. 850,000 college students who were eligible for aid did not complete the forms (ACE 2004) • Many more who were eligible did not attend at all (3) Late Information • Do not learn about aid eligibility until a few months before attending college

  6. Low-income & minority parents feel strongly about the need for more information on how to pay for college Source: Sallie Mae Fund (2003) "National Consumer Study of Parent and Student Financial Aid Awareness." % Strongly Agree 51% (29% of all parents) 52% 42% 23% 14% % of parents of 18-24 year olds who strongly agree

  7. Source: Dynarski & Scott-Clayton (2007)

  8. Concerns about the Current Financial Aid System (cont) (4) Missed Deadlines • ACE (2004) found that more than half of 1999-2000 filers missed the April 1st deadline to be eligible for additional state and institutional aid (5) FAFSA Complexity and Time • “The FAFSA, at five pages and 128 questions, is lengthier than Form1040EZ (one page, with 37 questions) and Form 1040A (two pages, with 83 questions). It is comparable to Form 1040 (two pages, with 118 questions).” (Dynarski and Scott-Clayton 2006)

  9. The Financial Aid Process The use of the financial aid application (FAFSA)

  10. The Financial Aid ProcessFAFSA - pages 3 and 4

  11. The Financial Aid ProcessFAFSA - pages 5 and 6

  12. The Financial Aid ProcessFAFSA - pages 7 and 8

  13. A Test of Leadership: Charting the Future of U.S. Higher Education (Sept 2006) The Spellings Commission The Commission concluded that some students“don’t enter college because of inadequate information and rising costs, combined with a confusing financial aid system.” “Our recommendations call for consolidating programs, streamlining processes, and replacing the FAFSA with a much shorter and simpler application.”

  14. Goal: Help families complete the FAFSA and give them Early Information The H&R Block Experiment: • Use a service that specializes in the information needed for FAFSA and has tax professionals with expertise in complicated income information • Serves many low- to moderate-income families (focusing on family income < $45,000) • Ability to process highly-accurate forms to meet deadlines in a timely fashion • Scalable – could replicate in many communities • About 2/3 of welfare recipients use tax preparers, like H&R Block to complete their taxes

  15. WHY H&R BLOCK? H&R Block Clients’ Income Distribution Nearly 64% of retail tax clients have AGI under $35,000

  16. Flow of the Randomized Trial HRB completes regular tax services Software screens to see if likely eligible Offered $20 Participation Coupon Complete consent & basic background questions RANDOMIZATION Treatment #1 FAFSA Simplification, Assistance, & Information Treatment #2 Information Only (to test effect on submission) Control Group If needed, follow up assistance provided by Call Center

  17. The Treatment Groups • FAFSA Treatment group: • Transfers relevant tax info already collected into appropriate FAFSA cells (1/2 to 2/3rds of form) – “pre-population” • Streamlined and automated interview used to collect remaining info (personal assistance protocol) • Calculate an individualized estimate of federal and state aid eligibility and info on local options (information) • Submit FAFSA electronically (if participant wants) or send them paper FAFSA to submit themselves • Information-only Treatment Group: Eligibility information but no pre-population or FAFSA help

  18. The FAFSA Experiment: Who was Eligible to Participate? • Income less than $45,000 (Pell eligible) • Family member between ages of 17 and 30 who does not already have a college degree • Group #1: High school seniors (dependent students under age 18) • Group #2: Independent, young adults (Age 24+, married, parents, veterans) • Other Project: High school students (soph./juniors)  Gave them an early estimate of eligibility while they still have time to prepare academically

  19. Do Simplification and Early Information help families? Do the interventions impact: • The completion and submission of the FAFSA? • College attendance? • Receipt of financial aid? • [College persistence and achievement?] Data: Tracking Students Over Time • National Student Clearinghouse (tracks enrollment at 94% of colleges nationally) • U.S. Dept. of Ed: FAFSA Submission and Aid receipt (conditional on enrollment) • [Ohio Board of Regents administrative data]

  20. Who is in the Study? • Low-income families: • Average income is about $23,000 for HS Seniors • Lower for independent students • Average income for FAFSA filers in Ohio is $54,000 • Minorities • Three times the minority representation of the population • Desirous of College Education • Over 60 percent want college degree

  21. The “Problems” Outcome #1. Filing a FAFSA Control Group Intervention Effects • Dependent Students • 40 percent file • Independents with no Prior College Experience • 14 percent file • Independents with Prior College Experience • 35 percent file • Dependent Students • 55 percent file • Independents with no Prior College Experience • 40 percent file • Independents with Prior College Experience • 56 percent file

  22. The “Problems” Outcome #2. College Attendance Control Group Intervention Effects • Dependent Students • 27 percent attend • Independents with no Prior College Experience • 10 percent attend • Independents with Prior College Experience • 24 percent attend • Dependent Students • 35 percent attend • Independents with no Prior College Experience • 12 percent attend • Independents with Prior College Experience • 24 percent attend

  23. Where are they going? • Dependent Students • Four-year Campuses • Public Colleges • Half-time or More • Independent Students without Prior College • Four-year Campuses • Public Colleges • Half-time or More • Independent Students with Prior College • No Effects on Enrollment

  24. The “Problems” Outcome #3. Aid Receipt Control Group Intervention Effects • Dependent Students • 30 percent get aid • Independents with no Prior College Experience • 10 percent get aid • Independents with Prior College Experience • 23 percent get aid • 18 percent use subsidized loans • Dependent Students • 33 percent get aid • Independents with no Prior College Experience • 12 percent get aid • Independents with Prior College Experience • 26 percent get aid • 20 percent use subsidized loans

  25. Where Are the Effects Most Salient?

  26. Low-income Independent Students • Effects on enrollment are amongst individuals where the government acknowledges no resources for college. • Twice as big as in overall population • For students were “very interested” in college, effects are three times as big as in the overall population • If the student identified “finances” as a major reason students did not continue in college, the effect was six times as big as in the overall population.

  27. Summary: Impact on College Enrollment & Aid Receipt • The FAFSA Treatment significantly increased enrollment among graduating HS seniors • Substantial increase of 7 percentage points in college going (34% compared to 27% for the control group) • Among older, independent students who had not previously attended college , there was also an effect • Enrollment effect was 21% (near significant) • The effect seems to be concentrated among those with incomes less than $22,000 • For other independents, there was an effect on aid receipt (addressing problem of eligible college students not getting aid)

  28. What is driving the Effects?Simplification, Assistance, and/or Information? • Treatment Effects by Submission Category • Among independents with no prior college experience: • Estimated treatment effects are driven by participants who expressed the preference of having H&R Block submit the form electronically or via the web • Largest effects were among those who were able to complete the FAFSA in the office (i.e., those who had their FAFSAs submitted electronically) • None of the treatment effect appears to be due to those who indicated a preference for paper submission

  29. The “Problems” Addressing Current Concerns with the Aid System The HRB Intervention • Average Interview was 8 minute • DOE reported rejection rate was lower than normal • Increase in FAFSA Filing among all • Enrollment Effects • Increased Receipt of Aid • Complexity/Time • Misinformation • Low Visibility • Late Information • Missed Deadlines

  30. The Push for FAFSA SimplificationRecent Debate and Initiatives What form should simplification and information take to improve outcomes? FAFSA EZ Form: But to see if qualified to use, must answer set of difficult questions (ala the regular FAFSA) FAFSA 4Caster: Still requires a great deal of information and internet access (particularly high speed) • U.S. Department of Education(announced Jun 2009) • May 2009: Simplifying the online FAFSA with skip logic; Giving instant estimates of aid • Jan 2010: Pilot allowing renewal students to retrieve their IRS tax information to aid in FAFSA completion • Bill in Congress: To reduce the number of questions

  31. Coming Attractions • More Dependent Students in 2009 Tax Year • 2nd Year Persistence • Student Transcripts for 75 Percent of Sample • Certificate or Degree Courses, Credits Earned, Grades • Effect on Underclass Students

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