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Integrity versus access? The effect of federal financial aid availability on postsecondary enrollment

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  • Darolia, Rajeev

Abstract

It is generally believed that access to financial aid will increase the likelihood that students will attend and graduate from college. There is a surprising lack of research, however, on the consequences when postsecondary institutions lose eligibility to disburse financial aid. This paper provides among the first causal estimates of institution-level financial aid funding loss on enrollment and composition of student bodies. I implement a dynamic regression discontinuity design using a multi-year rule that restricts institutions' eligibility to offer federal aid such as Pell Grants and subsidized loans when alumni's loan repayment rates are below allowed thresholds. Results suggest that financial aid loss discourages enrollment at for-profit institutions and institutions that offer programs of two years or less. The decline in enrollment appears to be driven by fewer new enrollees, particularly at for-profit colleges. I find less conclusive evidence that ineligibility to disburse federal financial aid substantially alters student body composition. This research is particularly relevant considering recently proposed federal rulemaking that will further limit the number of institutions eligible to disburse financial aid based on additional student loan debt repayment requirements. Restrictions such as these are intended to protect students and the integrity of federal aid programs, but may also have implications for access to higher education.

Suggested Citation

  • Darolia, Rajeev, 2013. "Integrity versus access? The effect of federal financial aid availability on postsecondary enrollment," Journal of Public Economics, Elsevier, vol. 106(C), pages 101-114.
  • Handle: RePEc:eee:pubeco:v:106:y:2013:i:c:p:101-114 DOI: 10.1016/j.jpubeco.2013.08.001
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    References listed on IDEAS

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    1. Dynarski, Susan, 2000. "Hope for Whom? Financial Aid for the Middle Class and Its Impact on College Attendance," National Tax Journal, National Tax Association, vol. 53(3), pages 629-662, September.
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    7. Dynarski, Susan M. & Scott–Clayton, Judith E., 2006. "The Cost of Complexity in Federal Student Aid: Lessons From Optimal Tax Theory and Behavioral Economics," National Tax Journal, National Tax Association, vol. 59(2), pages 319-356, June.
    8. Stephanie Riegg Cellini, 2010. "Financial aid and for-profit colleges: Does aid encourage entry?," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 29(3), pages 526-552.
    9. Bradley R. Curs & Larry D. Singell, Jr. & Glen R. Waddell, 2007. "Money for Nothing? The Impact of Changes in the Pell Grant Program on Institutional Revenues and the Placement of Needy Students," Education Finance and Policy, MIT Press, pages 228-261.
    10. David J. Zimmerman, 2003. "Peer Effects in Academic Outcomes: Evidence from a Natural Experiment," The Review of Economics and Statistics, MIT Press, pages 9-23.
    11. Stephanie Riegg Cellini & Claudia Goldin, 2014. "Does Federal Student Aid Raise Tuition? New Evidence on For-Profit Colleges," American Economic Journal: Economic Policy, American Economic Association, vol. 6(4), pages 174-206, November.
    12. Thomas J. Kane, 2003. "A Quasi-Experimental Estimate of the Impact of Financial Aid on College-Going," NBER Working Papers 9703, National Bureau of Economic Research, Inc.
    13. McCrary, Justin, 2008. "Manipulation of the running variable in the regression discontinuity design: A density test," Journal of Econometrics, Elsevier, vol. 142(2), pages 698-714, February.
    14. Eric P. Bettinger & Bridget Terry Long & Philip Oreopoulos & Lisa Sanbonmatsu, 2012. "The Role of Application Assistance and Information in College Decisions: Results from the H&R Block Fafsa Experiment," The Quarterly Journal of Economics, Oxford University Press, vol. 127(3), pages 1205-1242.
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    Cited by:

    1. Rajeev Darolia, 2015. "Messengers of Bad News or Bad Apples? Student Debt and College Accountability," Education Finance and Policy, MIT Press, pages 277-299.
    2. Ozan Jaquette & Edna Parra, 2016. "The Problem with the Delta Cost Project Database," Research in Higher Education, Springer;Association for Institutional Research, vol. 57(5), pages 630-651, August.
    3. Stephanie R. Cellini & Rajeev Darolia & Lesley J. Turner, 2016. "Where Do Students Go when For-Profit Colleges Lose Federal Aid?," NBER Working Papers 22967, National Bureau of Economic Research, Inc.
    4. Webber, Douglas A., 2017. "Risk-sharing and student loan policy: Consequences for students and institutions," Economics of Education Review, Elsevier, vol. 57(C), pages 1-9.
    5. Stephanie Riegg Cellini & Nicholas Turner, 2016. "Gainfully Employed? Assessing the Employment and Earnings of For-Profit College Students Using Administrative Data," NBER Working Papers 22287, National Bureau of Economic Research, Inc.
    6. Cellini, Stephanie Riegg, 2012. "For-Profit Higher Education: An Assessment of Costs and Benefits," National Tax Journal, National Tax Association, vol. 65(1), pages 153-179, March.
    7. Darolia, Rajeev, 2013. "Student Loan Repayment and College Accountability," Payment Cards Center Discussion Paper 13-5, Federal Reserve Bank of Philadelphia.
    8. Wiederspan, Mark, 2016. "Denying loan access: The student-level consequences when community colleges opt out of the Stafford loan program," Economics of Education Review, Elsevier, vol. 51(C), pages 79-96.

    More about this item

    Keywords

    Financial aid; For-profit colleges; Student loan default; College access; Dynamic regression discontinuity;

    JEL classification:

    • H52 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Education
    • I22 - Health, Education, and Welfare - - Education - - - Educational Finance; Financial Aid
    • I28 - Health, Education, and Welfare - - Education - - - Government Policy

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