At this Northeastern university, students are classified as low-income if their family income is less than the national median family income — $41,955 for the class entering in 1998. In this study, the researchers classified students as minorities if they identified themselves as African-American, Hispanic, or Native American. Asian students are not classified as minority. Ninety-eight percent of the lowincome students admitted to the university in the sample analyzed by Linsenmeier, Rosen, and Rouse were awarded financial aid, compared to only 43 percent of non-low income students. The school figured its new program would cost about $1.7 million per year by the time it was fully phased-in, in fiscal year 2002. The three researchers find that the new program is only a border-line success. Substituting grants for loans increased the likelihood of a lowincome student actually starting college at the school by only 3 percentage points, and this number is not statistically significant. In the case of lowincome minority students, the likelihood of entering this institution grew between 8 and 10 percentage points, with statistical significance at the 10 percent level.
The authors explore several explanations for why they did not find a statistically significant effect among all students. First, it is possible that students were not aware of the change in financial aid. However, under regular admissions students are notified about their financial aid packages before deciding which institution to attend. Thus even if the students had not been aware of a change in policy, they would see the (relatively generous) components of the financial aid package. In addition, if students were unaware of the change
Does Grant Aid Attract More Students than Loans?
“Substituting grants for loans increased the likelihood of a low-income student actually starting college at the school by only 3 percentage points, and this number is not statistically significant.” then it is unclear why there was an effect for minority students.
Second, it is possible that competing institutions effectively mimicked the policy change at this Northeastern university, thereby mitigating any potential enrollment effects. However, the authors show that although there was an observed increase in grant aid at this Northeastern university after the policy change, a similar increase at competing institutions is not observed.
Thus the authors speculate that the reason they cannot statistically detect the incremental change resulting from the policy is that the program was too small to have had a large effect on enrollment decisions.
A second puzzle explored by the authors is why the program seems to have had a larger impact on minorities than other students. They note that since the incomes of the families of the minority students admitted under the new program are not much lower than those of the non-minorities admitted under the program, differences in family incomes are unlikely to explain the different result. That said, the fact that the program appears to have had a larger effect on minorities than on non-minorities is consistent with the notion that minorities’ expectations of their post-college earnings are not as certain as those of their nonminority former college colleagues.
So, the authors conclude, colleges and universities should take into account the importance of expectations when analyzing and designing financial aid programs.
— David R. Francis
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