Skills, Schools, and Credit Constraints: Evidence from Massachusetts

Low college enrollment rates among low income students may stem from credit constraints, low academic skill, low quality schools, or some combination of these. RecentMassachusetts data allow the first use of school district fixed effects in the analysis of credit constraints, leading to four primary findings. First, Massachusetts’ low income students have lower intended college enrollment rates than higher income students but also have dramatically lower skills and attend lower quality school districts. Second, inclusion of skill controls greatly reduces but does not eliminate the intended enrollment gap, with low income students seven percentage points less likely to intend enrollment than similarly skilled higher income students. Third, in districts where higher income students are plausibly unconstrained, inclusion of school district fixed effects does little to reduce intended enrollment gaps, with low income students nine percentage points less likely to intend enrollment than similarly skilled higher income students from the same school district. Fourth, low income students in the middle and upper parts of the skill distribution appear the most constrained, particularly with respect to four-year public colleges. State governments could use the methods employed here to identify credit constrained student populations in order to target financial aid more efficiently. ∗For their helpful comments, I thank Janet Currie, David Figlio, Sara Goldrick-Rab, Johannes Schmieder, Miguel Urquiola, and two anonymous referees, as well as participants of Columbia’s Applied Microeconomics Colloquium and the 2008 Annual Meeting of the Population Association of America.