This paper analyses the effect of family size on children’s educational attainment using a new research design that combines fixed effects and instrumental variable (IV) approaches. We use (a) data on first cousins who belong to the same extended family but to different nuclear families to control for extended family fixed effects and (b) variation in in-married spouses’ number of siblings (a proxy for their fecundity and preferences) as an IV for variation in family size within extended families. We find that family size has a negative causal effect on educational attainment and, moreover, that the negative effect is smaller in families with stronger social ties. Our results suggest that contextual characteristics outside the nuclear family moderate the negative effect of family size on children’s educational attainment.