Denmark has one of the most generous governmental student grant systems in the world, but during the financial crises the question has been brought up, whether this student aid should be decreased. The system supports students over 18 years old enrolled at an educational institution. The amount of support depends on whether you live with your parents or not, but also on the level of educational enrollment. The parental income only matters if the student lives at home and is under 20 years old. All colleges are public and free of charge. At college level, the period of time students are entitled to receive a grant is often decided by the prescribed length of the education plus one year. However, there is an upper limit on a little less than 6 years for receiving student aid, which is in force even though the student decides to pursue a new education within another field.
During times of recession this generous system of student aid seems to be an easy way to cut down cost, but what are the effects of a reduction in the student aid? The economic theory predicts that a reduction in the student grant will increase the opportunity cost, and thereby leading fewer people to take an education. A removal of the additional student aid besides the prescribed length of the education will create incentives for people to complete their studies faster, but at the same time the struggle of achieving a degree will be less attractive and more people will drop out of school.
The empirical research results seem to support the economic theory well, but how large is the effect? The Danish think tank DEA has published a report (2012, November) on the most relevant empirical findings in the context of student aid changes. Research based on changes in the Danish student grant system in 1988 by Nielsen et al (2008) finds that: “A $1,000 increase in the stipend increases college enrollment by 1.35 percentage points”. Häkkinen and Uusitalo (2003) investigate the effect of the Finish reform in 1992, where the maximal period of student aid was reduced by 2½ years. Their findings indicate that a reduction of one year leads to a faster completion of studies (1.2 month earlier). Heineck et al (2006) explores the effect of inducing a monetary punishment if the students have not completed their studies within four months of the prescribed time. A punishment induces a significant increase in the number of drop outs on more mathematical studies, whereas there is no significant effect for less mathematical studies.
In order to evaluate whether changes in the governmental student aid system are feasible, further calculations and considerations need to be taken into account. Probably there is room for improvement. DEA has suggested making a distinction between the groups, which has a higher risk of abandoning school and entitling them to student aid for a longer period of time than the rest.
All numbers are taken from the following secondary source: Publish by DEA, authors Thomas Odgaard, Jonas Herby & Alexandra Berthelsen: “HVORDAN PÅVIRKES STUDERENDES INCITAMENTER AF SU-REFORMER? – EN INTERNATIONAL SAMMENLIGNING”, 2012 Nov.