Performance Standards in Need-Based Aid: The Impact of Pell's SAP Requirements on Academic Outcomes and Labor Supply
*Names in bold indicate Presenter
We use administrative data from over 20 community colleges in a single state, combined with regression discontinuity (RD) and difference-in-difference (DID) designs, to examine the consequences of failing SAP. We examine students’ second-year performance (and beyond) as a function of first year GPA: students with a GPA below 2.0 will receive an academic warning and are at risk of eventually losing aid, while those earning a 2.0 or above are considered to be in good standing. The RD compares aid recipients just above and below the cutoff, while the DID compares the difference in outcomes above and below the cutoff for students receiving and not receiving financial aid. These two approaches are complementary: the RD is arguably more causally rigorous, but is limited to estimating effects for students near the threshold. The DID is of greater policy relevance because it examines impacts for a broader range of affected students, even though more vulnerable to confounding factors. The DID also isolates the *additional* effect of academic warning for aid recipients, over and above the effects that non-recipients might experience.
We find heterogeneous effects of SAP failure, with negative impacts on persistence but positive effects on grades for students who remain enrolled. The negative effects on persistence appear to be largest for students furthest below the threshold, as theory would predict. After three years, we find clear negative effects on credits attempted, but little effect on credits completed. Effects on degree completion are sometimes positive, but sensitive to specification. Overall, the net benefit of the policy depends on the weights policymakers attach to these positive and negative outcomes. While it appears that SAP policy substantially reduces aid expenditures with only limited negative consequences in the long term, it also may exacerbate inequality in higher education by pushing out low-performing low-income students faster than their higher-income peers.