UCL Department of Economics


The role of performance incentives in need-based grants for higher education: Evidence from the Spanish Becas

There is only limited evidence on the specific contribution of performance standards (i.e., having passed a certain number of credits in the previous academic year) to the effect of need-based financial aid on student outcomes. This paper investigates the causal effect of financial aid on the academic performance (average GPA and fraction of credits passed) and degree completion of low-income students in higher education. The specific design of the Spanish national need-based grant program allows to disentangle the effect of grant eligibility under different intensities of performance-based incentives. I use the sharp discontinuities induced by family income thresholds to estimate the effect of being eligible for different categories of allowances, and exploit the fact that academic performance requirements became more stringent for students who applied for a grant after 2012. I find no effects of the grant on student performance under a framework comparable to the weak performance incentives that characterize the typical need-based grant programs around the world. By contrast, I find strong positive effects under a setting with more demanding performance standards. Student’s also enhance their final exams attendance rate, their average GPA in final exams taken, and their probability of degree completion. There is neither evidence of an impact of grants on student selection on courses nor on the probability of dropout from university.