Does Merit-Based Financial Aid Reduce the Number of STEM Graduates?

In recent years, there has been an intense debate in the United States over how to identify and build effective policies to attract the most suitable students to higher education, regardless of socioeconomic background or financial constraint. In this context, the government has undertaken a series of actions to make colleges more affordable, including increasing the maximum Pell Grant Award, reforming loans to keep debt manageable, and announcing the President’s plan to make two years of community college free of tuition.

Today, more than half of states base at least some of their college financial aid awards on academic achievement. In fact, many states award more than half of their financial aid based on merit. One example is Georgia’s HOPE scholarship, which is one of the largest merit-based programs in the United States.

The growth of merit-based financial aid has led to a sizable literature analyzing its effects on outcomes such as enrollment, persistence, and graduation. However, little attention has been given to the effect of merit-based aid on the selection of college majors. Some individuals argue that merit-based grants may be behind the fact that the nation’s higher education system is producing an insufficient number of graduates in the STEM fields (representing the fields of Science, Technology, Engineering, and Mathematics), and thus is negatively affecting the potential economic growth of the country.

The exact mechanism through which this effect may be occurring is not clear. One theory is that financial aid causes high-merit students to shift away from high-paying majors, such as those in the STEM fields. Another possibility is that the requirements to access the aid (e.g. high school grades) and to maintain it (high college GPA) encourage some students to engage in strategic behaviors to earn and maintain financial support, such as taking easier courses in high school or choosing less challenging majors.

In a new study, authors David L. Sjoquist and John V. Winters find consistent evidence that merit-based aid programs reduce the probability that a young person in the state will earn a STEM degree. In fact, in states with a strong program, the number of STEM graduates is reduced by an average of 6.5 percent, after controlling for state-of-birth, birth year, and characteristics such as sex and ethnicity. Even further, when analyzing trends separately for each gender, males show a much larger decrease in the probability of earning a STEM major compared to females.

The authors arrived at these findings by examining individual-level data from the American Community Survey (ACS), together with a methodology known as difference in difference. Looking at 27 states that adopted merit-based aid programs between 1991 and 2005, the authors identified a treatment group and a control group of students. The treatment group consisted of individuals who were exposed to strong merit aid programs when they graduated from high school, whereas the control group consisted of students who had either graduated before similar merit-aid programs were implemented in their state, or who were born in similar states that did not adopt merit aid policies.

This methodology addresses two of the main issues in previous literature examining merit aid. First, it disentangles the effect of the aid program from the effect that unmeasured characteristics (such as a student’s inner perseverance or innate ability) may have on the choice of major. The methodology also takes into account the effect that receiving merit based-aid has on a student’s likelihood of attending an in-state college.

The question now is what should be done. There is no simple answer, considering that the exact mechanism through which merit-based aid is affecting trends in major selection is not fully understood. Meanwhile, it is possible for policymakers to address some aspects of the potentially problematic correlation between merit aid and a shift away from STEM majors, and the authors provide some ideas for how this may be done. One possibility is to lower GPA requirements for STEM majors, so students are not incentivized away from challenging coursework out of concern for high grades. However, this could also create an adverse selection problem, where low quality students select into STEM fields because of lower GPA requirements. Another possibility is determining eligibility for merit aid based on SAT or ACT scores instead of high school grades—though this may push out potential STEM students who do not perform well in standardized tests but excel in their academic coursework.

President Obama has launched several initiatives to draw more students into the STEM fields. For example, the Educate to Innovate campaign focuses on increasing the quality of math and science instruction from kindergarten through high school, aiming to motivate and prepare students to access STEM programs after graduation. These initiatives should be complemented by improvements to the financial aid programs that, for many students, can affect their choices of majors and eventual occupations.

Article Source: “State Merit Aid Programs and College Major: A Focus on STEM.” Sjoquist, D.L. & Winters, J.V., Journal of Labor Economics, 2015.

Featured Photo: cc/(Canadian Light Source)