The effect of tax-based federal student aid on college enrollment

Abstract

Tax-based federal student aid -the Hope Tax Credit, Lifetime Learning Tax Credit, and Tuition Deduction -marks a new paradigm for federal aid by offering tax incentives for postsecondary enrollment for the middle class. I exploit policy-induced variation in tax-based aid eligibility to estimate its causal effect on college enrollment. I find that tax-based aid increases full-time enrollment in the first two years of college for 18 to 19 years old by 7 percent. The price sensitivity of enrollment suggests that college enrollment increases 0.3 percentage points per $100 of taxbased aid. The programs do not appear to substantively affect part-time enrollment in the first two years of college.