Information Constraints Limit Effectiveness of Student Aid

Financial aid can expand access to college, but not if prospective students from disadvantaged backgrounds have incomplete information about costs, says a working paper released today by the National Bureau of Economic Research. Students understand well the benefits of higher education, but they persistently overestimate costs, and due to “complex aid formulae, poor marketing, and cumbersome application procedures,” become confused about their eligibility for grants and loans, says the paper, which reviews several studies on those topics. Aid programs should be simple, transparent, and predictable, with early notification for recipients, better promotion over all, and links to academic achievement, recommends Judith E. Scott-Clayton, an assistant professor of economics and education at Teachers College at Columbia University, the author of this paper and a recent one on student employment.