The effect of the supplementary grant on parental contribution: an empirical analysis for the Netherlands

Recently, there has been considerable debate about a reform of the Dutch system of student support, in which grants will be (partly) replaced by loans. The discussion focuses on the effects on student enrollment decisions. Surprisingly, no study has yet analysed the effect of receiving a grant on parental contribution. Parents may decrease their contribution when their child receives a grant, in which case subsidies meant for the students unintentionally end up with the parents. Understanding the corresponding parental behaviour will contribute to a more in-depth discussion on the financial aid system. This paper focuses on the effect of the supplementary grant on the parental contribution in the Netherlands. The supplementary grant is meant to support students from disadvantaged families. Parents from students with the supplementary grant have less disposable income, which probably implies a lower contribution. Our identification strategy separates this income effect from the effect due to the payments of the supplementary grant. The results suggest substantial substitution. Each additional euro spent on supplementary grant reduces the parental contribution with approximately 20-60 cents. A broad range of sensitivity analyses support our main estimation results. Nevertheless, some caution in interpreting the results is needed because of data limitations.