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Estimating the Value of Higher Education Financial Aid : Evidence from a Field Experiment

Using data from a Canadian field experiment on the financial barriers to higher education, we estimate the distribution of the value of financial aid for prospective students.  We find that a considerable share of prospective students perceive significant credit constraints.  Most of the individuals are willing to pay a sizable interest premium above the prevailing market rate for the option to take up a loan, with a median interest rate wedge equal to 6.8 percentage points for a $1,000 loan.  The willingness-to-pay for financial aid is highly heterogeneous across students, with preferences and in particular discount factors playing a key role in accounting for the variation.

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