Money, time and effort. Does financial aid improve university performance?

There is a wide debate about the effectiveness of financial incentives on university performances (i.e., drop-out risk, credits, grade point average grade, and timely graduation) and on possible mediators like time use (i.e., time allocation between study and work). This paper investigates the impact of a generous need- and merit-based financial aid made available to students from low-income families introduced in the province of Trento (North-East of Italy). Exploiting data from a unique dataset resulting from administrative data and a longitudinal survey, we implement a Regression Discontinuity Design in order to disentangle the causal effect of the financial aid from other confounding factors. We provide evidence that different students re-act very differently to monetary transfers, thus reconciling different theories. For some students need- and merit-based financial aid can have a positive impact on students’ performance at university, especially in terms of timely graduation. Students undertaking more demanding degree courses, however, appeared to be performing less well, despite spending more hours studying rather than working.