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NEW on #LaFonte – Grants versus loans: How financial aid shapes degree programme choice. By Adriano De Falco and Yannick Reichlin
Read the article 🔗 lafonte.eui.eu/2025/03/28/g...

#education #Chile #studentdebt #STEM

6/ Policy takeaway: even if unintended, financial aid shapes college major choices and not only the “extensive” margin of university enrollment. Aid that mitigates risks tied to degree completion (like grants) has the potential to steer students toward high-return fields.

5/ The key insight: grants provide insurance against the uncertainty of completing challenging degrees. Students with grants are less deterred by dropout risks and longer time to degree completion, which allows them to choose fields with higher earnings potential.

4/ What are the channels? To answer this, we estimate a discrete choice model for narrowly defined programs (e.g., environmental chemistry) that includes a large set of program attributes (earnings after graduation, dropout rates, formal and realized study time,...).

3/ More generally, we find that grants encourage the choice of fields with higher associated earnings and steeper earnings growth profiles. This contrasts with previous US evidence, which shows students leaning toward lower-return majors when given aid.

2/ We exploit Chile’s higher education system, where access to either grants or loans is determined by a test score cutoff. Using a regression discontinuity design, we show that access to grants significantly increases enrollment in STEM (+11.5%).

1/ College majors differ substantially in associated labor market trajectories, employment probabilities, and the difficulty of degree completion. Concerns about the repayment of student loans plausibly shift the relative importance of such attributes in shaping major choices.

🚨 Updated WP

Ever wondered how financial aid - grants vs. loans - impacts students' college major choices? In a revised version of our paper, @adridefax.bsky.social and I provide answers using rich administrative data from Chile (link: papers.ssrn.com/sol3/papers....).

Here is a summary: