Nudging Disadvantaged Students Towards Improved College Application Decisions

Total student debt in the US is $1.1 trillion and climbing. When considered as a financial decision, students’ college choice is one of the most consequential one-time decisions of their lives, and growing evidence suggests that many students are not making decisions in their best interests.

For example, placing undue importance on school rankings may ultimately lead to debt without substantially improving career prospects. Research shows that students on average do not benefit financially from attending the most selective institution to which they are admitted. Yet stories abound of students paying top dollar for selective private institutions while turning down significantly cheaper education at public or less selective private schools, investing thousands of dollars more in their chosen school than an option with equivalent prospects for their financial future.

The story is quite different for a particular group of college-bound students: bright students from minority and disadvantaged backgrounds. Conditional on applying, students from low-income families are just as likely as their high-income peers to be admitted to and matriculate at top institutions. In fact, their education would likely be cheaper at a more selective institution, since these institutions tend to have more resources to support students with financial need. Yet very few even apply.

Additionally, minorities and students from disadvantaged backgrounds are the only ones who seem to experience a boost in lifelong earnings from attending a more selective college among those to which they were admitted. Between the aid they could (but do not) receive and the income they could (but do not) earn, many of these students are potentially missing out on tens of thousands of dollars.

Some promising interventions include straightforward information-sharing and cash assistance, but a recent study suggests that a more subtle and less expensive policy intervention may also have a dramatic impact. In “Small Differences that Matter: Mistakes in Applying to College,” Harvard Economist Amanda Pallais shows that tweaking the reporting of standardized tests may have a sizable impact on the educational outcomes of disadvantaged students.

Before 1997, the ACT only allowed students to send three free score reports to prospective colleges, with each additional report costing $6. Over 80 percent of ACT takers sent exactly three reports in the years leading up to 1997. By contrast, students in the class of 2000 could send up to four score reports for free, and almost 75 percent of ACT takers sent exactly four reports. The fractions of students sending three and four SAT reports remained relatively constant over the time period studied.

This change in score reporting likely resulted in real economic gains for students from low-income families, probably at the expense of their peers. By matching data from the ACT database with the American College Survey and the American Freshman Survey, Pallais finds that students from lower-income families ended up attending more selective schools after the ACT policy change, while students from families with higher incomes attended slightly less selective schools. A rough calculation suggested that the extra free report, which would have only cost students $6 before 1997, would result in an average $10,000 increase in lifetime earnings for students from lower-income families.

The estimated increase in earnings may actually be quite a bit lower than the expected net change in wealth. Because students from low-income families tend to receive more aid from more versus less selective institutions, an increase in selectivity may mean a decrease in college-related expenses for these students.

How can waiving a $6 fee have such a dramatic impact? The college application process is riddled with uncertainty, and students in disadvantaged areas in particular may not have access to quality counseling or other resources to guide them. They rely on cues from the environment about what decisions to make. What is the optimal number of colleges to apply to? Many students’ first exposure to an implied answer is on the ACT exam in the form of the number of free score reports. Joining a chorus of behavioral economics research, Pallais’s study offers another example that small details of a decision process can have dramatic consequences.

Article Source: Pallais, Amanda. “Small differences that matter: mistakes in applying to college.” No. w19480. National Bureau of Economic Research, 2013.

Feature Photo: cc/(Alberto G)