Do parental cash transfers weaken performance in college?
Örn B. Bodvarsson and Rosemary L. Walker
When parents support children in college, does this undermine the incentive to do well? The authors test the hypothesis that parental cash transfers induce college students to commit moral hazard in their studies on a sample of nearly 1300 undergraduates at two Midwestern universities. After controlling for a wide variety of factors influencing college performance, it was found that those students receiving at least partial coverage from their parents for tuition and books: (1) failed their courses more often than self-financed students; (2) were at higher risk of being placed on academic probation; and (3) earned lower GPAs.