How big does a lottery jackpot have to be to boost college attendance?

First study using tax returns of lottery winners looks at how one-time income gains affects college outcomes

rob fairlie and george bulman
Economics professors Rob Fairlie, left, and George Bulman.

To better understand the connection between parental resources and college attendance you might start by looking at lottery winners.

In a new working paper published through the National Bureau of Economic Research, UC Santa Cruz economics professors George Bulman and Rob Fairlie explore how resources and school decisions correlate by examining more than 1 million children of state lottery winners.

To determine if additional household resources influenced college outcomes, Bulman and Fairlie matched federal tax records from parents who won the lottery to the financial aid records of college students, factoring in time and size of jackpots.

They found that modest wins of $10,000 to $30,000 had little effect on college attendance. Even winning $30,000 to $100,000, a sum that would make the costs of in-state tuition at a four-year public university tenable, made no real difference. The percentage point estimate was close to zero.

It was the large wins that saw the larger impact on university enrollment.

Wins between $100,000 to $300,000 raised attendance between 1 to 2 percentage points and wins of $300,000 to $1 million increased attendance by 5 to 6 percentage points. But if a family won $1 million or more, attendance at a four-year college shot up by 10 percentage points.

The economists also accounted for the influence of a lottery win on financial aid packages and borrowing constraints. Even if a student would have been eligible for financial aid before their family won the lottery, it made no difference to their attendance decision.

“While a reduction in financial aid is the natural byproduct of winning the lottery, whatever crowd-out is occurring is not altering children’s attendance decisions,” the economists write.

The study, co-authored with Serena Goodman from the Federal Reserve Bank and Department of Treasury's Adam Isen, is also the first to use the universe of lottery winnings from tax records to study income effect on any outcome.

The authors also explored how winning the lottery influenced other financial decisions, including homeownership and employment. Bulman and Fairlie looked at how a family managed personal finances after a win, such as savings, mortgages, and investments. 

“The effects of additional income for investment in homeownership are more nuanced: for those without a mortgage prior to winning, there is an increase in having a mortgage at every win level,” the authors write. “For those with a mortgage already, it appears that households use large winnings to pay it off.”

Bulman and Fairlie also address implication for policy design, suggesting that educational investment might benefit from a reduction in college costs and an increase in value families place on college.