Study Examines Effect of Financial Aid Programs on College Persistence

Key Takeaways:

  • Student outcomes are sensitive to a change in financial aid policies.
  • Since it is difficult to tell whether or not effects on college persistence extend beyond the first year through graduation, it is difficult to evaluate a cost-benefit analysis of switching from a policy based solely on family size and income to a policy that awards aid based on the FAFSA EFC.
  • Overall, programs could increase their targeting to increase cost-effectiveness.

By Charlotte Etier, Research Analyst 

With college affordability often cited as the reason for non-completion, many scholars have begun to focus on the impact of need-based aid programs and college retention. In a recently released special edition of Education Evaluation and Policy Analysis, which focused on the use of longitudinal student data systems, the effects of need-based aid policies and college persistence in Ohio was examined among nearly 86,000 students. Evidence from “Need-Based Aid and College Persistence: The Effects of the Ohio College Opportunity Grant” looked at two back-to-back cohorts of students who had received aid under different policies and found student outcomes are sensitive to a change in financial aid programs, but such programs are not always cost-effective.

According to the report, during the 2006-07 academic year Ohio embarked on one of the nation’s most ambitious need-based financial aid policies. Under the Ohio College Opportunity Grant (OCOG), which used students' Free Application for Federal Student Aid (FAFSA) expected family contribution (EFC) amounts to award aid, some students who started during the 2006-07 academic year received up to 60 percent more need-based aid than similar students who started in 2005-06 when Ohio still “offered need-based aid solely based on family size and income.” 

Using student-level data from those two years allowed researcher Eric Bettinger, a professor at Stanford University School of Education, to identify students from each year who had nearly identical financial characteristics, but potentially differing financial aid awards, due to exposure to the new program. By dividing the students into three cohorts - winners (received higher 2006 awards than their 2005 counterparts), losers (awards in 2006 were less than awards for 2005 counterparts), and unaffected - and comparing them, evidence showed that student outcomes are sensitive to a change in financial aid programs. Winners were less likely to dropout or transfer after one year, with a 2 percent reduction in dropout rates overall among the group, and these students were also more likely to attend a 4-year institution and raise their GPA after year one.

While the results on student outcomes are promising, the results of a cost-benefit analysis are mixed. Since the study only examined students during their first year of the program it is difficult to tell whether or not effects on college persistence extend beyond the first year. Bettinger’s cost-benefit analysis finds that if effects extend through graduation, the program will have a positive return of 5 percent, whereas if they do not, the program would not be cost-effective. Regardless of program duration this research recommends improvements in program targets to increase overall cost-effectiveness.

For more research on the impacts of need-based grant aid check out NASFAA’s recent Journal of Student Financial Aid articles: 


Publication Date: 5/8/2015

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