Association for Public Policy Analysis & Management

Research has found a great concern among policymakers, education leaders, students and their parents regarding college affordability and labor-market outcomes. While research has assessed the positive impact of student-grant aid on persistence and completion, none has linked the effects of grant aid on students’ academic and labor-market outcomes. This study closes this gap by performing a regression-discontinuity analysis that estimates the effects of Texas’s $1 billion need- and merit-based student grant program. This study exploits a grant eligibility cutoff that limits funding to students with a reported family income below a certain threshold. The data tell a story of how student grant aid improves academic performance measures that lead to graduation — such as persistence, course-load completion and grade point average — and its effect on graduation itself. This study advances what we know about student-aid effects by using state unemployment insurance data to estimate effects on employment rates, earnings and field of occupation for students in the Texas labor market. This study also examines heterogeneous effects across certain student demographics and subgroups, including (a) gender, (b) race/ethnicity, (c) first-generation college students, or by (d) measures of college readiness held by incoming college freshmen. The findings of this study suggest that the public investment made to support grant aid payoff in higher academic performance, greater graduation rates, higher employment levels, higher incomes, and higher taxes paid back to the state. Finally, this study demonstrates how better data systems that link student records and employment can help answer significant questions regarding the cost and payoff of higher education.