The Long-Term Effects of Financial Aid Policy: Debt and Well-Being in Adulthood
Fabian Pfeffer1, Elizabeth Burland1
1University of Michigan
To assess the determinants of household debt we trace the long-term impact of an important policy change in higher education financing, the 1992 Reauthorization of the Higher Education Act (1992 HEA). The 1992-HEA entailed changes in financial aid policy that benefited wealthier households as it excluded home equity – the central component of most families’ wealth – from the calculation of financial aid eligibility. Using longitudinal data from the Panel Study of Income Dynamics and difference-in-difference models, we identify the causal and heterogeneous impact of this change in financial aid policy on not just the distribution of educational outcomes, such as college going and graduation, but also on later-life economic outcomes, namely household debt and wealth in later adulthood. Preliminary findings suggest that the policy change significantly increased the wealth gap in college going and that it may also have contributed to the further spread and stratification of household debt.