El graffiti, medio popular y alternativo.

The work in this dissertation focuses on two major issues germane to the market for higher education: the changing structure of financial aid in the United States and the changing paradigm of time to degree. The advent of state merit-based scholarships in the U.S. has changed students’ college-going decisions, as well as their choices while in college. While good intentions belie these programs, do such scholarships help or hinder a student’s ability to complete college? Do they affect the academic trajectory of the student, ultimately affecting their career path? Chapters 2 and 4 address this issue directly. The longstanding trend of taking longer to complete a baccalaureate degree is also at question. How long is too long? Do employers entertain this variable when making job offers? Chapter 3 addresses this issue. I summarize the main findings, limitations, and policy implications of each essay in turn.

In chapter two, “Does Broad-Based Merit Aid Improve College Completion? Evidence from New Mexico's Lottery Scholarship,” we investigate whether broad-based merit aid results in any meaningful change in college completion rates. Surprisingly, we find that merit aid, as it is structured in New Mexico, results in some students being less likely to graduate, with others being more likely to graduate. This divide hinges on academic preparation. Although completion rates are unaffected in the aggregate, we provide evidence that such scholarships result in meaningful changes in student

composition. With low initial eligibility criteria, students appear to utilize the scholarship at the university providing the highest expected return on to degree, often corresponding

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to the flagship university or the university with the highest cost of attendance. Low-bar scholarships generous in funding may promote overmatching, which occurs when a student attends an institution for which they are academically underprepared. We find that low-achieving high school students that acquire such scholarships are less likely to complete their studies. Conversely, students that perform well in high school are more likely to complete. What is the best solution to increasing access to higher education at the state-level? Not surprising to economists, it appears that broad-based merit-aid scholarships have both costs and benefits to recipients. The trade-off focuses is one between access and completion: broad-based merit scholarships significantly increase access to higher education, yet they distort the choice of where to go, and may harm the marginally prepared student seeking out the highest return. Disaggregating results by family income suggests that program effects are likely driven by students from low- income households. Because the NMLLS has had many difficulties regarding solvency over the years, we recommend that a need-based component to the scholarship be

considered. Additionally, researchers would like to have data on the entire postsecondary system in New Mexico, which would allow for a richer analysis of compositional change as a result of such scholarships.

In chapter three, “Wage Effects of Baccalaureate Time to Degree in the United States,” we examine whether how long an undergraduate student spends obtaining a degree matters to employers after college. Using a nationally-representative longitudinal study of high school students, we develop a test of whether longer time to degree serves as a negative productivity signal. Previous literature estimates that each additional year beyond the four-year mark results in up to an eight percent wage penalty. Being skeptics,

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and assuming that college students are rational actors in the economy, we test this

hypothesis ourselves. The major problem with previous literature is that time to degree is endogenous in the earnings equation. That is, there are several factors which may both affect time to degree and earnings, such as student ability, college quality, for example, and unobservable factors that impact how long a student typically graduates at a given college. We confront this endogeneity by controlling for student ability (vis-à-vis standardized test scores), institution quality (vis-à-vis Barron’s Admissions

Competitiveness data), and instrumenting the student’s time to degree by the average at their institution. The instrument appears to be relevant and exogenous. Without using instrumental variables techniques, we are able to mimic the large and significant wage penalties found in previous studies. However, after controlling for the above and using instrumental variables, results suggest that time to degree is not taken as a productivity signal, and there is no wage penalty associated with lengthened time to degree. Results provide fodder to arguments that punishing prolonged time to degree is a waste of resources. Indeed, we offer theoretical and empirical evidence showing that rational, utility-maximizing students may prefer to earn a degree and work part-time

simultaneously over six years, rather than foregoing work and completing a degree in four years.

In chapter four, “Merit Aid Scholarships and Human Capital Production in STEM: Evidence from New Mexico,” I examine whether merit based aid dissuades students from studying more difficult subjects, such as STEM. The advent of state merit aid scholarships begs the question: do students respond by avoiding more difficult majors, such as those in STEM? I again utilize the rich administrative data set provided

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by UNM (same as chapter two). Using the same matching algorithm, which appears to have been successful, I estimate whether students are more- or less-STEM averse after receiving the scholarship. Using two different outcomes related to studying STEM (declaring a first major in STEM and earning a degree in STEM), I find that there is no meaningful impact of the NMLLS in the aggregate. However, there does appear to be a divergent effect when disaggregating by academic preparation, as proxied by one’s high school performance. High achieving students seem to study more STEM in response to merit aid, while low-achieving student have an opposite reaction. This is in line with the theoretical literature. Results suggest that adopting or killing state merit aid scholarships will not affect degree production in STEM, although it may change the composition of those earning it in terms of academic preparation and gender.

This work is by no means a comprehensive study relating to the relationship between state merit aid student outcomes. In fact, it only scratches the surface. We provide evidence of the costs and benefits of such aid, but implore universities and state governments to make more data available, so that we may make more informed decisions regarding the trade-off between accessibility to higher education and student success.

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Appendices to Chapter 2