The Impact of Public Student Grants on Drop-Out and Completion of Higher Education - Evidence from a Student Grant Reform

There is little consensus on how financial aid affects drop-out from or completion of higher education, yet huge amounts are spent on financial aid for higher education. This study adds to the literature by employing variation from a large-scale reform of the Danish grant system to identify the impact of study grants on drop-out and completion of higher education. Discrete duration models for time-to-drop-out and time-to-completion are estimated on highly reliable register data that includes information on high school GPA and parental education and income. Intention-to-treat estimates (ITT) of the reform and treatment effects of study grants using the reform as instrumental variable (IV) are presented using various specifications of the reform effect. Both sets of parameters (ITT and IV) indicate that the reform and grant levels are negatively related to drop-out, although not supported by all reform effect specifications, whereas no impact is found on completion rates