Association for Public Policy Analysis & Management

Evidence regarding the effect of Pell Grants, the nation’s largest need-based grant program, has been mixed. There is no evidence on the impact of enrollment right after Pell was established in 1972 (Hansen 1983; Kane 1995). And a recent study finds no impact on course credits or completion, once students enroll (Marx & Turner, 2014). On the other hand, there is some evidence that Pell may impact enrollment for adult students (Seftor & Turner 2002) and possibly persistence conditional on enrollment (although the results were sensitive to model specification, Bettinger, 2004). Prior literature points to two explanations for Pell’s mixed effects; complexity of application process and low predictability (Dynarski & Scott-Clayton, 2006; Dynarski & Wiederspan, 2012; Scott-Clayton, 2013) and complex interaction with other financial aid programs such as state and institutional aid (Long, 2004; Turner, 2012; Turner, 2014).

In this paper we examine two research questions for community college students: 1) How does Pell eligibility interact with other financial aid packages? 2) What is the effect of Pell eligibility on student labor supply and academic outcomes?  Using administrative data on entrants at more than 20 community colleges in one state, we examine post-enrollment outcomes for students just above and below the expected family contribution (EFC) cutoff for receiving a Pell Grant. In the years we examine, students just below the cutoff received nearly $500 more in Pell. On average, however, students’ financial aid packages adjust so that this does not translate into any additional aid received. At schools that do not participate in the federal student loan program, students just above the cutoff receive state grant aid that nearly erases the difference in Pell Grants, leaving no significant discontinuity in total grants around the cutoff. At schools that offer federal student loans, differences in federal loans erase the discontinuity, leaving no significant difference in total aid. Still, for these “loan-offering schools” we can estimate the impact of receiving grants versus loans. Using regression discontinuity (RD) design, we find significant differences in full-time enrollment in the spring and subsequent fall semesters, as well as significant declines in student earnings over the first year of enrollment. We find no significant effects on longer-term outcomes, but caution that our estimation is not well-powered to detect small effects (observed coefficients are positive on outcomes including credit and degree completion). Finally, we also find evidence of differential selection into our community college sample for students near the cutoff. This provides indirect evidence that students’ initial enrollment decisions may be influenced by an offer of grants versus loans, and suggests that our estimated impacts on post-enrollment outcomes could be biased downwards.

Our research has two implications. First, financial aid at community college is complex, suggesting the need to consider patterns of other aid programs when evaluating the impact of Pell. Second, students who are receiving modest Pell Grant seem to shift their time allocation, reducing work while increasing their enrollment intensity.