Student Aid And The Distribution Of Educational Attainment

This paper uses cutbacks to a post-secondary funding program for Indigenous people in Canada to understand how marginalized populations respond to increases in the costs of higher education. I exploit between-cohort and cross-eligibility variation in exposure to student aid to show that increasing the costs of post-secondary education not only affects post-secondary attainment but also leads to a sizeable decrease in high school graduation rates. This result is in line with a theoretical model that embeds the expected costs of higher education in the high school decision. The model predicts that high school graduation is affected by the cost of higher education in environments where students face low labour market returns to completing high school. I show that after reductions in targeted student aid in the late 1980s, high school graduation rates declined by four percentage points on Indian reserves, where the return to a high school degree is low, relative to a control group. Post-secondary attainment also responded to changes in the availability of student aid, although the exact magnitudes and levels of post- secondary education affected vary across genders. I estimate that the cutbacks to student aid explain approximately 10 percent of the contemporary difference in hours worked between Indigenous and non-Indigenous people in Canada.