Association for Public Policy Analysis & Management

Panel: New Perspectives on Financial Barriers to Postsecondary Success

(Education)

College cost and affordability have been the focus of popular and policy attention over many years, and for good reason. Tuition costs have been increasing faster than rates of inflation, while family incomes remain stagnant. Accordingly, most college undergraduates utilize financial aid from federal and other sources. For example, while 45 percent of 1993 college graduates borrowed to attend college, this rate rose to 67 percent for 2008 graduates. In 2013, over 9 million undergraduates received a Pell grant, and a third of all undergraduates took on a federal student loan (College Board, 2014). Nevertheless, there is evidence that the current system of financial aid is not serving all students well. Currently, there is more than $1 trillion outstanding in student loans with college graduates averaging debt of $23,300 in 2011 (Sallie Mae, 2009). The papers in this panel provide new evidence on the barriers facing students financing higher education. Students, particularly those from low-income backgrounds, commonly lack an accurate understanding of higher education costs, and this may significantly hinder their continuation to postsecondary education (ACSFA, 2005). The first paper investigates Net Price Calculators (NPC) as tools for aiding families to understand differences between “sticker” and net price of college cost after accounting for financial aid and provides evidence on the accuracy of estimates generated by the federal template NPC. Even when students understand sources of financial aid, they must often be willing to take on loans in order to continue on to higher education. Yet, loan aversion may stand in the way of students making optimal enrollment decisions. The second paper provides evidence on the extent of loan aversion in three populations: high school students who may enroll in higher education, community college students who are currently enrolled in higher education, and adults who have not enrolled in higher education. The authors hypothesize that an awareness of income-based repayment lowers levels of loan aversion because of the reduced risk associated with poor financial outcomes and discuss implications for interventions focused on decision-making related to loans. Further, once students have matriculated to postsecondary education, the structure and flexibility of their financial aid may have important implications for retention and success. The third paper investigates the impact of Satisfactory Academic Progress (SAP) requirements associated with the Pell Grant Program. The paper finds that failure to meet SAP standards has negative impacts on persistence but positive academic effects for students who remain enrolled. The fourth paper provides experimental evidence from the Performance-Based Scholarship Demonstration, which examines impacts of a scholarship program in which payments are contingent on students meeting academic benchmarks. The program disburses funds directly to students, who in turn may use the money towards education-related costs such as books, or towards less traditional higher education costs, such as transportation and child care. The findings show that these scholarships can be an important tool to improve academic progress and graduation rates. Collectively, these papers serve to inform policy efforts to improve the financial aid system and, subsequently, college enrollment and success.