The Economic Impact of Place-Based Scholarships in Public School Districts

Since the introduction of the Kalamazoo Public School District’s Promise Scholarship Program in 2005, public school districts across the country have announced similar initiatives, offering college scholarships for students who have attended its public schools for a set period of time. Because they are place-based, Promise programs incentivize families with young children to remain in or relocate to a public school district offering the scholarship.

Prior research has primarily focused on educational outcomes associated with Promise programs, but little is known about whether and how they may cause economic and demographic changes in communities. In a recent paper titled “Promise Scholarship Programs as Place-Making Policy: Evidence from School Enrollment and Housing Prices,” Michael LeGower and Randall Walsh find that Promise programs impact student enrollment and property values within school districts, but the benefits are unequally distributed across socioeconomic groups.

The authors find that when a public school district announces it will implement a Promise program, the average district’s enrollment grows by four percent, while average local property values increase by seven to 12 percent. The authors examine both property values and enrollment to estimate homebuyers’ perceived financial value of Promise scholarships. The authors use data from the National Center for Education Statistics’ Common Core of Data to compare enrollment trends in 23 Promise school districts to nearby non-Promise districts before and after the scholarship program announcement.

The authors employ a more complex approach in their property value analysis. First, they combine data on property characteristics from Dataquick Information Systems with tract-level demographic data from the U.S. Census. Then, the authors use this data to create a model that predicts a property’s sale price in eight different Promise school districts. This model allows them to compare the price of a property sold after a Promise program was announced to what that same property’s sale price would have been had it sold before the announcement.

While the school enrollment increase suggests that Promise scholarships do indeed sway parents’ decisions about school choice, the observed increase in property values provides insight into the perceived value of the scholarship’s financial incentive. This is important because the authors also find the greatest property value increases in more expensive neighborhoods with higher-performing schools. Unsurprisingly, Promise scholarships hold the most value for wealthier parents because their children are less likely to receive need-based financial aid. However, it also suggests that the benefits of Promise scholarship programs may not be equally distributed: well-off parents receive incentives for moving to areas within the school district that are already economically successful, while less successful areas do not experience this economic boost. On the other hand, the authors posit that an influx of wealthy families into a school district could lead to an increase in total property tax revenues, benefiting a district’s lowest-performing schools.

Additionally, it is important to note that Promise programs vary widely in terms of eligibility requirements, monetary value, and number/type of post-secondary institutions where the scholarships can be used. This heterogeneity allows the authors’ to study how different aspects of the program affect outcomes. For example, they observe that Promise districts that impose eligibility requirements based on academic merit experience lower black and hispanic student enrollment, as compared to programs without such requirements. They also find that Promise program announcements have a smaller effect on enrollment when the scholarships can only be used at a limited number of post-secondary institutions.

This study is the first of its kind to analyze a broad sample of Promise scholarship programs across the country with the goal of understanding their place-making economic impact. The results indicate that while Promise programs hold the potential to increase school enrollment and property values, policymakers must carefully consider how to implement these programs in a way that does not exacerbate existing inequities.

Article source: LeGower, Michael and Randall Walsh. “National Center for Education Statistics’ Common Core of Data.” Journal of Urban Economics, Vol 101. (2017): 74-89.

Featured photo: cc/(SimplyCreativePhotography, photo ID: 182835093, from iStock by Getty Images)