Association for Public Policy Analysis & Management

This study estimates how the price of college affects college attainment for students at varying levels of income, to inform targeting of grant aid based on financial need. The federal government spends over $30 billion each year on need-based aid for college students, supplemented by an additional $8 billion from the states. The goal is to close persistent gaps in college attainment by income. Studies of these aid programs have shown varying degrees of success toward this goal, but research designs have not been able to identify effects for the poorest students most in need of financial aid. I exploit an eligibility cutoff induced by first-come first-served allocation of limited funding in the state of Wisconsin. This cutoff affects students throughout the income distribution providing broader evidence than in a typical regression discontinuity design. I focus on two-year technical colleges, where there is a large funding shortage and only five in eight financially eligible applicants receive financial aid. Compared to public and private universities, two-year public colleges receive more need-based aid, educate more students, and have higher rates of dropout. I find modest positive effects of the Wisconsin Grant in reducing dropout and supporting degree completion, driven by larger positive effects for the poorest students.

Because the estimates focus on the population local to a funding cutoff, they directly inform decisions of the legislature as they consider funding increases, and the decisions of a state policymaking board as they weigh the size of grants versus the number of students that can be served. The estimates of heterogeneous effects by income directly inform the allocation decisions within a given budget and grant size, whether to be more generous to relatively lower-income students or to complement federal grants for middle-income students.