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 Higher Education Act Reauthorization (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 aid eligibility. Using longitudinal data from the Panel Study of Income Dynamics and difference-in-difference models, we identify the causal impact of this policy on college going,  college graduation, and economic outcomes in later adulthood. Preliminary findings suggest that the policy change significantly increased the wealth gap in college going but find no discernible effects of later-life outcomes, including college graduation. These preliminary findings will motivate a more complex analysis to fully take into account the potential heterogeneous impacts and the possibility that the policy induced students to access higher-tuition colleges.