| Kalena Cortes
Syracuse University
The effect of changes in federal student aid-packaging on the educational choices of low-income and minority students
FINAL REPORT
Research has consistently shown that increasing access to post-secondary education and improving college graduation rates is an effective way to combat poverty. Unfortunately, the high cost of attending college continues to be a major deterrent for low-income and minority students. For example, from 1988 to 1998, the average cost of attending a four-year college rose from $9,539 to $12,282 per year (in 1999 constant dollars). Meanwhile, changes in federal financial aid packaging over the past 25 years have moved from roughly equal emphasis on student loans and grants to a greater reliance on the latter. Because low-income and minority students may have different preferences for grants versus loans than their upper-income and white counterparts, the changes in financial aid-packaging over this period may have significant distributional consequences.
In this study, I examine whether and to what degree changes in federal student aid programs affect the educational choices of minority and low-income students in comparison to their nonminority and high-income counterparts at colleges and universities. More specifically, I ask whether and to what degree federal grant and loan programs affect four-year versus two-year college enrollment over the period 1989 through 2000. I am particularly interested in quantifying the differential effects of federal grant and loan aid amounts on minority and low-income students who may be more sensitive to changes in federal student aid-packaging.
In order to account for endogeneity biases that plague previous studies, I employ instrumental variables methods to account for the endogeneity of aid. I instrument for aid receipt using household size and the number of college-age family members in the household. These instruments are valid for grant and loan aid amounts since they are highly correlated with aid awards but arguably not correlated with any unobserved factors that may influence four-year versus two year college attendance.
I find that minority and low-income students respond more strongly to aid inducements than their non-minority and high-income counterparts. Because governments and institutions have moved away from offering grants and toward increased use of loans in recent years, there have been significant changes in the distribution of financial aid across these groups of students. My results indicate that there are consequently significant differential effects on post-secondary educational choices among minority and low-income students.
Using the same empirical strategy I also study the effects of timing of financial aid offers on student behavior. I find that aid offers to students in their early years of study (i.e., freshman and sophomores) are likely to have far greater impacts on choice of four-year versus two-year college than those offers made to students in their later years of study (i.e., juniors and seniors). Taken together, these findings indicate that financial aid policies that target minority and low-income students in their early years of college may have real and significant effects on post-secondary educational choices and outcomes.
Back to Funded Research Grants Page |