Estimating the effect of financial aid offers on college enrollment: Regression-discontinuity approach

An important problem faced by colleges and universities, that of evaluating the effect of their financial aid offers on student enrollment decisions, is complicated by the likely endogencity of the aid offer variable in a student enrollment equation. This article shows how discontinuities in an East Coast college's aid assignment rule can be exploited to obtain credible estimates of the aid effect without having to rely on arbitrary exclusion restrictions and functional form assumptions. Semiparametric estimates based on a regression-discontinuity (RD) approach affirm the importance of financial aid as an effective instrument in competing with other colleges for students.