Designing incentive systems in higher education

In Norway, students have a right to financial support to cover living costs while studying. This support is governed by Norwegian State Educational Loan Fund (SELF). Over the past two decades there has been a policy shift towards more incentives in the Norwegian student financing system. Firstly, in 2002 Norway implemented a system where financial support was first provided as a loan, of which a given share could be turned into a grant when students completed their credits. In 2019, the incentive structure was changed, where part of the loan-to-grant-conversion was provided first upon degree completion. Given that the vast majority of Norwegian students receive support from SELF the policies underlying grants and loans influence a substantial part of the student population. Through interdisciplinary and international collaboration we will: 1) investigate whether the existing incentive system achieves its goal of stimulating credit and degree completion, 2) provide insights into the factors influencing the success or failure of student financing incentives, and 3) increase the knowledge on how to ensure effectiveness of such incentives. This project will produce novel insights on the potential for policymakers to use student financing systems to influence student decision-making, so they can maximize the benefits of higher education for individuals and society. Moreover, the project will provide insights into who benefits and who is harmed by the current student financing policy. As a part of the project, a field experiment will be conducted. The project group consists of researchers from NIFU, University of Stavanger and University of Michigan (USA). The project will be conducted in close collaboration with SELF, both concerning data and when administrating the field experiment. Results from the project will be disseminated through various workshops and a final conference, which will set the results in an international perspective.

Government expenditures on higher education (HE) are rapidly increasing. The increasing need for a college degree is in many countries coupled with an increasing proliferation of student financing policies and systems. Public spending on HE is typically justified by the social benefits derived from such investments or by the desire to promote equality of opportunity in education. However, in addition to such equity concerns, policymakers are also tasked with spending scarce public resources efficiently. Resources spent funding or subsidizing students should therefore result in outcomes that benefits society in general, e.g., a well-educated and productive labour force. Low completion rates and slow progression threaten the justification for such spending, leading to concerns among policymakers. Faced with scrutiny over high public spending on HE, policymakers reluctant to reduce the financial support to students—which would likely imply that HE would become less accessible—are in need of measures that ensure that these support systems are efficient in promoting policy goals, such as a higher completion rate. In this project, we leverage unique features of the universal financial support system in Norway to generate insights into how policymakers can balance the need for ensuring adequate returns on the investment made in students with the desire to promote equality of opportunity in education. In collaboration with the Norwegian State Educational Loan Fund (SELF), we will study the effectiveness of the Norwegian government’s efforts to promote degree completion using monetary incentives, how students respond to them, and how the implementation of such incentives can be designed to promote their policy objectives more effectively, the latter through a randomized controlled trial. Finally, a qualitative approach using focus groups will provide further insight into how students think about and respond to incentives in the student financing system.