Threatening the American Dream: How State-Funded Merit Scholarships Impact Intergenerational Economic Mobility
AbstractMuch debate exists about the benefits of state-funded merit scholarships in bridging the opportunity gap between those who can and cannot afford quality post-secondary education. This paper employs a difference in difference methodology to analyze the relationship between state-funded, merit scholarships and economic mobility in thirteen states. It also investigates other short-term outcomes such as college completion and college enrollment, long-term outcomes such as income, and government spending at the state level. This study finds that state-funded merit aid has small and statistically insignificant impacts on overall economic mobility within states. However, statistically significant evidence suggests that these scholarships lead to a small reduction in college enrollment for African-Americans. Moreover, lottery-funded merit scholarships are estimated to have an adverse effect on employment benefits for state residents in the short term. This finding suggests that the use of lottery revenues for scholarships detracts from other forms of government spending that might otherwise benefit the poor and unemployed. Finally, there is suggestive evidence that merit aid has the greatest adverse effect on income for the bottom 25th percentile of earners, but benefits the top quartile of earners. Overall, the findings imply that merit scholarships may exacerbate wealth inequality by crowding out minorities and low-income students from in-state campuses, and in some cases, diverting resources away from government assistance programs.
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