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

  • Darolia, Rajeev
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    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.

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    File URL: http://www.sciencedirect.com/science/article/pii/S0047272713001606
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    Article provided by Elsevier in its journal Journal of Public Economics.

    Volume (Year): 106 (2013)
    Issue (Month): C ()
    Pages: 101-114

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    Handle: RePEc:eee:pubeco:v:106:y:2013:i:c:p:101-114
    Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505578

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    1. David J. Zimmerman, 2003. "Peer Effects in Academic Outcomes: Evidence from a Natural Experiment," The Review of Economics and Statistics, MIT Press, vol. 85(1), pages 9-23, February.
    2. Dynarski, Susan & Scott-Clayton, Judith, 2006. "The Cost of Complexity in Federal Student Aid: Lessons from Optimal Tax Theory and Behavioral Economics," Working Paper Series rwp06-013, Harvard University, John F. Kennedy School of Government.
    3. 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.
    4. Susan Dynarski, 2000. "Hope for Whom? Financial Aid for the Middle Class and Its Impact on College Attendance," NBER Working Papers 7756, National Bureau of Economic Research, Inc.
    5. 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, vol. 2(3), pages 228-261, June.
    6. 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 319-56, June.
    7. Neil S. Seftor & NSarah E. Turner, 2002. "Back to School: Federal Student Aid Policy and Adult College Enrollment," Journal of Human Resources, University of Wisconsin Press, vol. 37(2), pages 336-352.
    8. 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.
    9. Deming, David J. & Goldin, Claudia D. & Katz, Lawrence F., 2012. "The For-Profit Postsecondary School Sector: Nimble Critters or Agile Predators?," Scholarly Articles 8642952, Harvard University Department of Economics.
    10. 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.
    11. David S. Lee & Thomas Lemieux, 2009. "Regression Discontinuity Designs in Economics," NBER Working Papers 14723, National Bureau of Economic Research, Inc.
    12. Pedro Carneiro & James J. Heckman, 2002. "The Evidence on Credit Constraints in Post--secondary Schooling," Economic Journal, Royal Economic Society, vol. 112(482), pages 705-734, October.
    13. 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(n. 3), pages 629-62, September.
    14. 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.
    15. Stephanie Riegg Cellini & Fernando Ferreira & Jesse Rothstein, 2010. "The Value of School Facility Investments: Evidence from a Dynamic Regression Discontinuity Design," The Quarterly Journal of Economics, MIT Press, vol. 125(1), pages 215-261, February.
    16. 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.
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