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The Effects of Merit-Based Financial Aid on Course Enrollment, Withdrawal and Completion in College

Author

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  • Cornwell, Christopher

    () (University of Georgia)

  • Lee, Kyung Hee

    () (Sogang University)

  • Mustard, David B.

    () (University of Georgia)

Abstract

Since Georgia unveiled its HOPE Scholarship in 1993, at least 15 other states have implemented or proposed merit-aid programs based on the HOPE model. A common justification for these actions is to promote and reward academic achievement, thereby inducing greater investments in human capital. However, grade-based eligibility and retention rules encourage other behavioral responses. Using data extracted from the longitudinal records of all undergraduates who enrolled at the University of Georgia (UGA) between 1989 and 1997, we estimate the effects of HOPE on course enrollment, withdrawal and completion, and the diversion of course taking from the academic year to the summer, treating non-residents as a control group. First, we find that HOPE decreases full-load enrollments and increases course withdrawals among resident freshmen. The combination of these responses results in a 12% lower probability of full-load completion and an annual average reduction in credits completed of about 0.8 or 2%. The latter implies that between 1993 and 1997 Georgia resident freshmen completed almost 12,600 fewer credit hours than non-residents, or about 2,520 individual course enrollments. Second, the scholarship’s influence on course-taking behavior is concentrated on students whose GPAs place them on or below the scholarship-retention margin. Third, program effect increased with the lifting of the income cap. Fourth, these freshmen credit-hour reductions represent a general slowdown in academic progress and not just intertemporal substitution. Finally, residents diverted an average of .5 credits from the regular academic year to the summer in each of their first two summers after matriculation, which amounts to a 22% rise in summer course taking.

Suggested Citation

  • Cornwell, Christopher & Lee, Kyung Hee & Mustard, David B., 2003. "The Effects of Merit-Based Financial Aid on Course Enrollment, Withdrawal and Completion in College," IZA Discussion Papers 820, Institute for the Study of Labor (IZA).
  • Handle: RePEc:iza:izadps:dp820
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    References listed on IDEAS

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    1. Christopher Cornwell & David B. Mustard, 2007. "Merit-Based College Scholarships and Car Sales," Education Finance and Policy, MIT Press, vol. 2(2), pages 133-151, February.
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    Cited by:

    1. Rodríguez-Planas, Núria, 2010. "Longer-Term Impacts of Mentoring, Educational Services, and Incentives to Learn: Evidence from a Randomized Trial," IZA Discussion Papers 4754, Institute for the Study of Labor (IZA).
    2. V. Rattini, 2014. "The Causal Effect of Scholarships Targeted at Low Income Students on Performance: Evidence from Italy," Working Papers wp968, Dipartimento Scienze Economiche, Universita' di Bologna.
    3. Michael Kremer & Edward Miguel & Rebecca Thornton, 2009. "Incentives to Learn," The Review of Economics and Statistics, MIT Press, vol. 91(3), pages 437-456, August.
    4. Christopher M. Cornwell & David B. Mustard & Deepa Sridhar, 2005. "The Enrollment Effects of Merit-Based Financial Aid: Evidence from Georgia's HOPE Scholarship," HEW 0501002, EconWPA.
    5. Christopher M. Cornwell & Kyung Hee Lee & David B. Mustard, 2005. "Student Responses to Merit Scholarship Retention Rules," Journal of Human Resources, University of Wisconsin Press, vol. 40(4), pages 895-917.
    6. Cornwell, Christopher & Mustard, David B., 2006. "Merit Aid and Sorting: The Effects of HOPE-Style Scholarships on College Ability Stratification," IZA Discussion Papers 1956, Institute for the Study of Labor (IZA).
    7. Michael Kremer & Edward Miguel & Rebecca Thornton, 2004. "Merit Scholarships, Randomized Evaluation, Human Capital Spillovers, Africa," CID Working Papers 109, Center for International Development at Harvard University.
    8. Núria Rodríquez-Planas, 2010. "Longer-term Impacts of Mentoring, Educational Services, and Incentives to Learn: Evidence from a Randomized Trial in the United States," Working Papers 449, Barcelona Graduate School of Economics.
    9. Christopher M. Cornwell & Kyung Hee Lee & David B. Mustard, 2005. "Student Responses to Merit Retention Rules," HEW 0501001, EconWPA.
    10. Christopher Cornwell & David B. Mustard, 2005. "Evaluating HOPE-style merit scholarships," Proceedings, Federal Reserve Bank of Cleveland, pages 33-37.
    11. Rodríguez-Planas, Núria, 2010. "Mentoring, Educational Services, and Incentives to Learn: What Do We Know About Them?," IZA Discussion Papers 5255, Institute for the Study of Labor (IZA).

    More about this item

    Keywords

    human capital; merit-based aid; higher education;

    JEL classification:

    • I2 - Health, Education, and Welfare - - Education
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity

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