Effect of Financial Aid on Student Academic and Labor Market Outcomes: The Case of Tennessee HOPE

• In Event: College and Post-College Outcomes of Merit-Based Financial Aid

Abstract

States aim to induce improvements in high school students’ academic performance and increase postsecondary access and attainment at in-state colleges through merit-based financial aid (Dynarski, 2004). Merit-based aid often delivers on these short-run goals (e.g., Pallais, 2009; Scott-Clayton, 2011) despite exceptions given disparities in program design across states (e.g., Domina, 2014). Rigorous research is limited on the effects of merit aid on earnings. Some evidence suggests that marginal students experience positive, albeit imprecise, earnings gains a decade after college entry (Bettinger et al., 2019; Scott-Clayton & Zafar, 2019). Compared to need-based financial aid, merit-based policies have weaker impacts (Nguyen et al., 2019), especially for some historically disadvantaged groups (Herbaut & Geven, 2020). Scholarship eligibility loss can negatively impact some individuals' college outcomes (e.g., Cummings et al., 2022).

Our study evaluates whether the receipt or loss of a Tennessee HOPE scholarship affects students’ post-college earnings and intermediary academic outcomes (persistence, graduation). HOPE supports roughly 30,000 first-time freshmen annually (Tennessee Higher Education Commission, 2023). HOPE’s primary eligibility criteria for Tennessee high-school graduates are measured by an ACT composite score (≥ 21) or cumulative high-school GPA (≥ 3.00). HOPE recipients received up to $2,850 per term at the time of study. Once students enroll in college, renewal criteria must be satisfied to keep the award. Specifically, students must maintain a minimum cumulative college GPA (CCGPA), measured at predetermined credit thresholds or checkpoints.

Prior work has found that HOPE does not affect whether eligible students attend college. Rather, HOPE primarily redirects students from community colleges into four-year public institutions (Bruce & Carruthers, 2014). Our study is the first to examine the effect of HOPE receipt or loss on post-college earnings. In doing so, we scrutinize the extent to which merit aid effectively facilitates upward mobility for academically marginal students.

This study examines whether the initial receipt and the loss of a HOPE scholarship affect post-college earnings between four and twelve years after graduating high school. We use data from Tennessee’s P-20 Connect longitudinal data system. Empirically, we employ a fuzzy frontier or instrumental variable RD (Reardon & Robinson, 2012; Wong et al., 2013) to estimate the effect of HOPE receipt on earnings. Meanwhile, losing HOPE eligibility is almost perfectly determined by one’s CCGPA, so to study award loss, we use a sharp RD design, although the robustness of the findings will be checked using the fuzzy RD design. We apply methods such as McCrary (2008) to check for running variable manipulation because the running variable, the CCGPA criteria, is continuous. We further investigate whether intermediary mechanisms such as college choice, major choice, and credential attainment explain earnings differentials at the HOPE eligibility margin (e.g., Scott-Clayton & Zafar, 2019).

Importantly, by simultaneously modeling the complex, longitudinal process of merit aid receipt and retention, we examine how these mechanisms operate for students from groups most likely to lose their merit-based funding. Our work aims to contribute to policy conversations regarding the most effective use of scholarship resources to best contribute to positive student outcomes.

Authors

• Chenjun Yu, University of Michigan
  Presenting Author

• Jennifer M Trigger, University of Michigan Ann Arbor
  Non-Presenting Co-Author

• Brian P McCall, University of Michigan Ann Arbor
  Non-Presenting Co-Author