Return on What Investment? The Behavioral Economics of Student Financial Aid
Each year, the federal government offers billions of dollars in need-based grant aid and loan subsidies to low-income college students. Concern is growing, however, around several system-wide problems that persist despite these federal investments: that many low-income students either 1) fail to take advantage of available aid; 2) are accepted to college but do not enroll; or 3) enroll but end up dropping out before graduating. While each of these decisions is informed by many factors, economists have identified program complexity and student behavioral bias as key variables—in other words, real humans do not always make the rational financial calculations policymakers expect of them when designing aid programs. This article reviews existing research on behavioral economics and student financial aid, examines access and completion barriers through a behavioral lens, and evaluates policy vehicles aimed to reverse students’ behavioral biases.