Do Credit Constraints Prevent College Enrollment?

Joshua S Goodman, Columbia University

Low levels of college enrollment among low-income youths may be due to credit constraints or to lower returns to college education. Distinguishing these explanations is difficult because most data sets lack measures of academic skill. Using data on the college intentions and test scores of all 2003 and 2004 Massachusetts high school graduates, I find that controlling for skill and school district greatly reduces the college enrollment gap due to low-income status, largely because low-income students have dramatically lower skill. The highest and lowest skilled low-income students enroll in college at the same rates as their higher income peers, though low-income students in the middle range of ability are significantly less likely to enroll. My results suggest that any increased financial aid should target lower income students in the middle of the skill distribution, but that funds might better be spent remedying the wide skill gaps present by high school.