Skills, Schools, and Credit Constraints: Evidence from Massachusetts

Abstract

Low college enrollment rates among low-income students may stem from a combination of credit constraints, low academic skill, and low-quality schools. Recent Massachusetts data allow the first use of school district fixed effects in the analysis of credit constraints, leading to four findings. First, low-income students in Massachusetts have lower intended college enrollment rates than higher income students but also have dramatically lower skills and attend lower-quality school districts. Second, inclusion of skill controls greatly reduces but does not eliminate this intended enrollment gap. Third, inclusion of school district fixed effects has little further impact, with low-income students eight percentage points less likely to intend enrollment than higher income students of the same skill and from the same school district. Fourth, medium- and high-skilled low-income students appear the most constrained. State governments could use the methods employed here to target financial aid more efficiently.