Recent Research: Does merit aid help improve educational metrics for low-income students?

A recent study found that merit aid awards increased four-year bachelor’s degree completion rates for students – especially among students that were unlikely to pursue the four-year program in the absence of financial aid. A team of researchers from the National Bureau of Economic Research assessed the marginal effects that merit aid from the Susan Thompson Buffett Foundation (STBF) has on students attending public colleges in Nebraska. The research also showed that the projected lifetime earnings of the students outweighed the costs of funding merit aid for low-income, people of color, urban, and first-generation college students in Nebraska.

The researchers assessed scholarships of 3,700 Nebraska high school seniors that graduated between 2012 and 2016. These scholarships were made through STBF awards, which are grant aids that fund more than 11 percent of Nebraska high-school graduates attending public colleges in Nebraska. SBTF scholarships tend to be generous in terms of allocation and are comprehensive in terms of application criteria and selections (accounts for financial need, high school GPA, and individual experience). Many scholarship recipients are required to participate in SBTF curated programs or experiences during their early years of secondary education.

For scholarship applicants that aimed to enroll between the fall semester of 2012 and the fall semester of 2016, STBF awards were largely allocated at random. Applicants were first scored on college-readiness: the top 15 percent of applicants were guaranteed an award and the bottom 10 percent were removed from consideration. The remaining awards were granted to the middle 75 percent by random selection, although accounting for constraints such as a limitations on award counts at the target schools of the applicants in each cohort.

Roughly 93 percent of students who received an STBF award accepted it. Overall enrollment rates at Nebraska colleges increased by 2.6 percentage points due to STBF awards, which the researchers found to be statistically significant. For four-year programs, this was an increase of 11 percentage points, but two-year programs saw a reduction of 6.7 percentage points. 

Degree completion was another metric that was largely increased by STBF awards. For six-year bachelor’s degree programs, STBF awards increased completion rates by 8.4 percentage points. Likewise, researchers found a 5.8 percentage point decline in applicants earning no degrees. Awards did not appear to have much of an impact on the completion of two-year associate degrees.

When narrowed down to specific subgroups, there were improvements in various metrics for applicants that were Omaha residents, students of color, and/or less prepared academically. Respectively, these degree completion increases due to STBF awards were 16, 12, and 14 percentage points. These outpace the degree completion increases of five, seven, and five percentage points due to STBF awards for non-Omaha residents, white students, and academically prepared students, respectively.

When accounting for costs and benefits, the study shows that STBF awards that culminated in a Bachelor of Arts degree raised the present daily value of lifetime earnings for the student by $450,000. The costs for the funder may exceed the gains induced by the award. The model utilized in the research shows that returns may exceed costs for roughly half of the subgroups of awardees – such as awardees that are Omaha residents, people of color, or have less-than-average college readiness initially.

Overall, the research finds that although STBF awards do result in a statistically significant increase in the enrollment in and completion of four-year degree programs, these gains are unevenly distributed between various subgroups. The researchers suggest that further research should be done to evaluate the merit of other financial aid programs, as well as looking into increasing the presence of targeted financial aid.

This research paper, Marginal Effects of Merit Aid for Low-Income Students by Joshua Angrist, David Autor and Amanda Pallais, is available for download here.