| Sigal Alon
Tel-Aviv University
New conceptual framework for assessing the influence of financial aid on student success
FINAL REPORT
I proposed a novel conceptual framework that separates two dimensions of financial aid: aid eligibility and aid amounts. I argue that because financial aid eligibility is endogenous to subsequent academic success, the effect of aid received on graduation found in prior research is biased due to a nonrandom selection into aid eligibility. However, once the effect of aid eligibility is netted out, the causal relationship between financial aid and students' success in college can be revealed (Alon 2005; in press).
Recent trends in financial aid policy suggests a declining commitment to need-based aid at the federal, state and institutional level, and increasing focus on merit-based aid initiatives that reduces the financial strain on middle-income families. This motivated me to use my conceptual framework to compare the relative effectiveness of need-based aid and broad-scale state merit scholarships in promoting student success in attaining a bachelor's degree and reducing the large graduation gap between needy and affluent students. Implementing my framework is critical for the question at hand because while receipt of need-based aid would likely indicate greater probability of inadequate academic preparation and low socioeconomic status, receipt of merit-based aid may reflect just the opposite. If this is the case, then a separate estimation for need- or merit-based aid should produce a need-based aid eligibility that is negatively correlated with the graduation likelihood, while the merit-based eligibility should be positively correlated with persistence outcomes.
The empirical investigation is based on data from the National Postsecondary Student Aid Study and the Beginning Postsecondary Students Longitudinal Study. The results show that state merit scholarship programs, by disregarding demonstrated need, do not improve retention nor reduce the economic graduation gap. Conversely, need-based aid increases students' graduation likelihood. By targeting financially needy yet academically deserving students and adjusting the amount of aid to the level of demonstrated need, need-based aid partly neutralizes the effect of income inequality among parents on children's college attainment. However, a more efficient and just redistribution of funds could have achieved an even more equitable outcome.
My analyses, by showing which students benefit, how much, and through which program have far reaching policy implications. The advent in the mid-1990s of state-sponsored merit-aid programs has intensified an old controversy vis-ˆ-vis need- and merit-based aid that revolves around the issue of targeting-specifically, whether student aid should target needy students or should provide low-cost or free tuition for everyone who meets some academic criteria, regardless of financial status. The evidence about the differential impact of need- and state merit-based aid on students' college success and social equity will definitely nourish a broader discussion about the distribution of public resources and the ways in which they might be harnessed to address societal needs.
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