Association for Public Policy Analysis & Management

Even before the substantial shock of the Great Recession, it was clear that income volatility for American families has been rising (Dynan et al. 2012; Gottschalk and Moffitt 1994; Ziliak et al. 2011).  This increase has mainly been due to increases in the volatility of labor market earnings, due both to short term shocks and a structural change away from earnings protections traditionally offered by long-term employment contracts (Dahl et al. 2011; Gottschalk and Moffitt 2009).  Research in the past decade or more has helped us understand the implications of earnings volatility for workers’ careers, their health, and family stability.

Though little work exists on the intergenerational aspects of volatility, the transmission of socioeconomic status (SES) across generations is well established (Altonji and Dunn 2000; Charles and Hurst 2003; Solon 1992).  In previous work, one of us has further established that on its own, income volatility during childhood is associated with lowered educational outcomes (Hardy 2014). In this paper we build on that work, and link it to the burgeoning literature on the impact of cost on college retention and dropout.

We propose examine the impact of parents’ income volatility while a child is in college on the likelihood of college dropout.  Further, we assess whether changes in financial aid eligibility triggered by year-to-year changes in family income are sufficient safeguards for retention of low-income college students.  We use the Transition to Adulthood (TA) supplement of the Panel Study of Income Dynamics (PSID) to link family income changes with college matriculation, retention and graduation outcomes for cohorts of young Americans leaving high school between 2005 and 2011.  Using the TA supplement merged with the main PSID and PSID wealth supplements, we to answer the following questions:

1)            What is the effect of family income volatility during the first 2 (and 4) years after high school on college matriculation, retention and on-time graduation?

2)            Do the effects differ by socio-economic status and initial college type?

3)            Do changes for students whose family income change trigger Pell grant eligibility/ineligibility experience smaller/larger changes in retention and graduation rates than those not at the margin of federal need-based financial aid?