Financial aid for college students and social mobility


Published 08.12.23
Photo credit:
simonmayer -

A large-scale financial aid policy in Colombia boosted social mobility for low-income, high-achieving students and improved the equity and efficiency of higher education

While higher education is often viewed as a pathway out of poverty, there is scant evidence that colleges, particularly those in the top tier, serve as engines of upward mobility. Recent studies highlight the difficulties faced by students from low socioeconomic status (SES) in accessing top-tier colleges (Chetty et al. 2023), and the expected benefits may not consistently materialise (Zimmerman 2019). Recognising that these challenges often arise from financial constraints, governments worldwide invest heavily in financial aid programmes. However, evidence on whether such aid effectively improves the long-term educational and labour market outcomes of low-SES students is both limited and mixed (Dynarski et al. 2022, Nguyen et al. 2019).

In new research (Londoño-Vélez et al. 2023), we assess the long-term impacts of an ambitious financial aid reform that overhauled access to Colombia’s top universities, documenting its effects on college enrollment, quality, completion, learning, employment, and earnings for both aid recipients and non-recipients nationwide. Using comprehensive administrative data linking all high school test-takers, postsecondary attendees, and formal workers across the country, our dataset spans from 2012 (two years before the reform) through 2022, offering a comprehensive view of the policy’s influence on educational and professional trajectories.

The “Ser Pilo Paga” (SPP) Programme

In 2014, Colombia’s national government introduced the SPP programme, a generous student loan initiative to enhance upward mobility by improving college access and quality for low-SES high-achievers. The programme provided full tuition coverage to recipients if they enrolled in one of 33 government-certified “high-quality” universities (HQ colleges), known for their higher test scores, graduation rates, and per-student spending compared to other institutions. Importantly, we show that HQ colleges are more effective in imparting skills and offering high-paying job prospects, as measured by “value-added.”

To be eligible, recipients had to score in the top 10% on the national standardised high school exit exam, called SABER 11, and belong to the lower half of the wealth distribution, based on the SISBEN proxy-means testing instrument. Notably, participants who completed their bachelor’s degree had their loans forgiven.

This large-scale programme annually benefited 10,000 high school graduates, constituting a third of those immediately enrolling in HQ colleges. Previous research has emphasized its crucial role in substantially diversifying elite universities. Notably, the average enrollment of students from low-SES backgrounds in these universities increased by 46%, and at the nation’s top institution, it quadrupled (Londoño-Vélez et al. 2020, Londoño-Vélez 2022). Consequently, the SPP programme stands out globally for successfully broadening access for low-SES students to selective colleges.

Impacts on recipients’ long-run educational and labour market outcomes

To identify impacts on recipients, we use two complementary regression discontinuity (RD) designs. In one, we compare outcomes for students who meet the poverty requirement but have test scores close to the minimum eligibility threshold. In the other, we compare students who meet the test score requirement but are near the poverty cutoff for eligibility. Interestingly, the impact of financial aid is large for both groups, implying substantial gains from expanding financial aid across the distribution of student SES and ability.

Specifically, financial aid significantly improves college enrollment, quality, and completion. Low-SES students just above the test score cutoff experience a ten percentage point (p.p.) increase in college attendance, a 12% improvement over the control group. Aid eligibility also raises the chance of attending HQ colleges by 44 p.p. (240%) compared to the control group, most of whom attend low-quality institutions. Moreover, financial aid eligibility increases the odds of low-SES high achievers attaining a bachelor’s degree by 16 p.p. (39%) at the test score cutoff and by 15 p.p. (27%) at the poverty cutoff, with over two-thirds of these gains occurring in STEM-related fields. These findings underscore that binding credit constraints resulted in distorted educational choices primarily based on the ability to pay and demonstrate that government interventions can effectively remove these barriers.

Financial aid recipients also experience substantial improvements in the labour market. Figure 1 plots the effect of financial aid eligibility (based on test scores) on formal monthly earnings within 0 to 8 years after high school completion. Programme eligibility raises earnings eight years after high school by about 21% of the monthly minimum wage (a separate estimate using a different causal inference technique (IV) indicates a 36% increase). This earnings gain more than compensated for the temporary earnings loss experienced by students during their college years (years 1-5). Furthermore, this earnings gain grows over time, consistent with the returns to college quality rising with labour market experience (MacLeod et al. 2017, Zimmerman 2014). Notably, targeted students achieve earnings gains surpassing the average returns of the HQ institutions they attended, as measured by “value-added,” underscoring the benefits of high-quality education for disadvantaged students.

Figure 1: The effect of financial aid eligibility on monthly earnings (Merit Cutoff)

Sources: Authors’ calculations based on SABER 11 (ICFES), SISBEN (DNP), and PILA (MinSalud).

Contrary to earlier research which suggests that, in a variety of contexts, the earnings advantage of attending an elite college primarily arises from signaling (Barrera-Osorio and Bayona-Rodríguez 2019, Sekhri 2020) and networking (Michelman et al. 2021), we show that the earnings advantage in Colombia is also linked to enhanced human capital. HQ colleges contribute to this improvement by equipping students with more knowledge and skills. We measure this skill improvement using Colombia’s mandatory and widely recognised standardised college graduation exam, which enables us to assess skill development during college and estimate impacts on human capital---a rare advantage compared to other contexts. Our findings indicate that recipients scoring above the test score threshold score 17% higher than the control group on Colombia’s college graduation exam.

We estimate the marginal value of public funds (MVPF), defined as the ratio of recipients’ willingness to pay for the policy to the net cost to the government, at 4.8 based on the poverty threshold and 5.6 based on the test score threshold. This indicates that the policy yields over $4.8 of benefits per dollar of net government spending, showcasing its effectiveness in improving social welfare.

Equity and efficiency

To give a larger view of the effects of expanding financial assistance and evaluate the effects on both equity and efficiency, we analyse the impact of expanding financial aid on the entire population of high school students in the country, encompassing both recipients and non-recipients.

To assess equity impacts, we compare outcomes for low-SES and high-SES students before and after the policy’s implementation. Expanding financial aid successfully narrows the socioeconomic gap in college attainment, skill development, and earnings among students who were academically similar in high school.

For example, Figure 2 illustrates the programme’s impact on the socioeconomic disparity in students’ likelihood of attaining a bachelor’s degree within seven years after high school. Before the policy, high-SES students—i.e., those ineligible for financial aid based on their SISBEN score—had a ten p.p. higher likelihood of earning a bachelor’s degree compared to low-SES students—i.e., those eligible for financial aid based on their SISBEN score—with this disparity persisting across all ranges of test scores (shown in gray and black, respectively). After the policy, high-SES students were unaffected (shown in blue). In contrast, the policy significantly improved outcomes for low-SES students (shown in red): the likelihood of attaining a bachelor’s degree jumped by 16 p.p. at the cutoff (illustrated by the red vertical line). The policy effectively eliminated the socioeconomic gap in bachelor’s degree attainment among students with similar levels of achievement.  

Figure 2: The effect of financial aid on the likelihood of obtaining a Bachelor's degree

Sources: Authors' calculations based on SABER 11 (ICFES), SISBEN (DNP), and SABER PRO (ICFES).

To evaluate efficiency, we compare low-SES and high-SES students across the distribution of test scores before and after the aid expansion. While concerns exist that large-scale programmes aiming to increase college enrollment for one group might inadvertently limit access for others, our analysis reveals that aid recipients did not displace aid-ineligible students from HQ colleges. Rather, these colleges met the heightened demand by promptly expanding their incoming cohorts, averaging around 50%.

This surge in the supply of elite colleges is unparalleled in existing literature. A legitimate concern might arise about its potential consequences, such as compromising educational quality, intensifying job competition, and devaluing degrees (Urquiola 2020). However, our findings contradict these concerns. The expanded capacity of elite colleges did not have adverse effects on degree completion, learning outcomes, or earnings for more privileged students. On the contrary, our results point towards positive spillover effects from the policy, indicating an overall improvement in both equity and efficiency.


Barrera-Osorio, F and H Bayona-Rodríguez (2019), “Signaling or better human capital: Evidence from Colombia,” Economics of Education Review, 70(C): 20–34.

Chetty, R, D J Deming, and J N Friedman (2023), “Diversifying Society’s Leaders? The Causal Effects of Admission to Highly Selective Private Colleges,” Technical Report 31492, National Bureau of Economic Research.

Dynarski, S, L C Page, and J Scott-Clayton (2022), “College Costs, Financial Aid, and Student Decisions,” Working Paper 30275, National Bureau of Economic Research.

Londoño-Vélez, J, C Rodriguez, F Sanchez-Torres, and L Esteban Alvarez-Arango (2023), “Financial Aid and Social Mobility: Evidence from Colombia’s Ser Pilo Paga,” Working Paper 31737, National Bureau of Economic Research.

Londoño-Vélez, J, C Rodríguez, and F Sanchez (2020), “Upstream and Downstream Impacts of College Merit-Based Financial Aid for Low-Income Students: Ser Pilo Paga in Colombia,” American Economic Journal: Economic Policy, 12(2): 193– 227.

Londoño-Vélez, J (2023), “The impact of diversity on perceptions of income distribution and preferences for redistribution,” Journal of Public Economics, 214: 104732.

MacLeod, W B, E Riehl, J E Saavedra, and M Urquiola (2017), “The Big Sort: College reputation and labor market outcomes,” American Economic Journal: Applied Economics, 9(3): 223– 261.

Michelman, V, J Price, and S D Zimmerman (2021), “Old Boys’ Clubs and Upward Mobility Among the Educational Elite,” The Quarterly Journal of Economics,137(2): 845–909.

Nguyen, T D, J W Kramer, and B J Evans (2019), “The Effects of Grant Aid on Student Persistence and Degree Attainment: A Systematic Review and Meta-Analysis of the Causal Evidence,” Review of Educational Research, 89(6): 831–874.

Sekhri, S (2020), “Prestige Matters: Wage Premium and Value Addition in Elite Colleges,” American Economic Journal: Applied Economics, 12(3): 207–25.

Urquiola, M (2020), Markets, Minds, and Money: Why America Leads the World in University Research, Harvard University Press.

Zimmerman, S (2014), “The Returns to College Admission for Academically Marginal Students,” Journal of Labor Economics, 32(4): 711–754. 38

Zimmerman, S (2019), “Elite Colleges and Upward Mobility to Top Jobs and Top Incomes,” American Economic Review, 109(1): 1–47.