Earning the Diploma: The Effects of Financial Aid on College Persistence

Does financial aid affect the rate at which students not only enroll in, but complete college? Does it, as intended, lessen the connection between family income and college attainment? A new paper from researchers at the University of Wisconsin-Madison, Conditional Cash Transfers and College Persistence: Evidence from a Randomized Need-Based Grant Program, contributes important findings to this discussion.

The benefits from earning a college degree include a lower unemployment rate, increased lifetime earnings, and social and health advantages. While the percentage of high school graduates who go on to attend college has risen significantly since the 1970s, the percentage of those students who actually complete college has increased at a slower rate.

Certain students, especially those from economically disadvantaged backgrounds, are especially likely to dropout of college. One way the government has tried to address this discrepancy is by awarding monetary aid, such as Pell Grants, meant to reduce the financial burden of college and increase attendance rates. However, while research has shown that financial aid increases college enrollment rates, it is unclear whether it affects persistence — whether a student continues in college.

Sarah Goldrick-Rab and her colleagues gathered three years of data on students participating in a new program called the Wisconsin Scholars Grant, which provides a grant of $1,750 per semester to randomly selected, traditional aged college students who are also receiving Pell Grants at Wisconsin public universities. Thanks to the fact that students are not identified for the grant until after they are already enrolled in college, and that students are picked for the program at random, researchers were able to observe how a need-based aid program affects college persistence specifically.

The researchers found no statistically significant difference between students in the grant program and their peers in the rate at which students enrolled for future quarters or the number of credits for which they signed up. However, they did find that, after two years, students who received the grant were 28 percent more likely to have earned at least 60 college credits. Thus, while students signed up for the same number of credits on average, students who were awarded the grant were more likely to have completed more of their classes after two years.

Also notable was the variation in effects for students with the highest and lowest likelihoods of finishing college (based on students’ and parents’ demographic characteristics); those least likely to complete college showed the greatest increase in persistence rates, attempted credits, and study hours.

Interestingly, the grant seems to have decreased persistence rates for students deemed most likely to complete college. Researchers are unsure if these discrepancies stemmed from differences in family involvement, interactions with aid counselors, timing, and means of communication of the initial reward, or other differences between student groups. They note that the complexity of the award’s effects points to the fact that need-based financial aid is not as straightforward a policy as it may seem. The researchers suggest that policymakers may need to more accurately target financial aid programs, but that “doing so without introducing complexity to the application for financial aid is… [a] major challenges.” They also note the importance, and difficulty, of determining whether effects are due to the monetary benefits of the grant or a result of the academic requirements (such as minimum credit hours earned or minimum GPAs required) tied to receiving the grant.

Learning more about how financial aid influences the behavior of college students is crucial to crafting more effective policy. The researchers hope to continue studying the Wisconsin Scholars Grant Program in future years, but also emphasize that additional research is needed to understand the complex relationship between scholarship money, college matriculation, and eventual college success.

UPDATE: An updated version of this paper was published in October 2012, tracking four cohorts of students over six semesters. The authors found that students who were offered the Wisconsin Scholars Grant both completed a full-time credit load and re-enrolled for a second year of college at higher rates than students who were not offered the scholarship. Interestingly, after the initial offer of the grant but before the financial resources had been dispersed, students’ academic performance and number of credits completed both increased slightly; these effects were more pronounced in students’ second semesters. Over time, however, these effects dissipated and were not observable by students’ third year.

Further, effects on retention rates were only distinguishable at universities that had room for growth: the three universities with initial retention rates over 90% were unaffected. The authors posit that this is due to a retention rate ceiling mitigating the effects of the grant. On average, however, an increase of $1,000 in a students’ first year of college was correlated with between a 2.8 and 4.1 percent increase in enrollment rates. Finally, some students experienced a “crowding out” effect where students’ other loan amounts were reduced after receiving the grant. On average, all Pell recipients had the same amount of aid after one year of college, but WSG recipients had more grant financing while Pell recipients had more loan financing; this did not appear to have an impact on retention rates.

 

Feature Photo: cc/Robert S. Donovan