Department of Economics Brown Bag with Emily Moschini Two-year Programs and College Financial Aid

Abstract: We evaluate recent policy proposals to make two-year programmes tuition-free in a life cycle model featuring two-year (AA) and four-year (BA) programmes. We document programme tradeoffs, organised by accessibility and quality, which are then incorporated into the model.

The AA programme is easier to get into and cheaper, but has a lower consumption value, graduation likelihood, and labour market returns. We find that making the AA programme tuition-free is a cost-effective way to increase the number of postsecondary graduates, but a spending-equivalent BA subsidy leads to more favorable outcomes in terms of output, skill of future generations, and welfare gains.