A Nudge for the Neediest

Study of impact of need-based financial aid finds that extra grants helped the students least likely to succeed, but did little to boost overall academic progress.
July 8, 2011

Two students, both eligible for Pell Grants for the needy, are randomly chosen to receive extra need-based aid as they start as first-time, full-time freshmen. One is considered very likely to complete a four-year degree; the other, an at-risk student, is a likely dropout. Whom does the grant help more?

A research study released Thursday concludes that the at-risk student considered likely to drop out will benefit the most -- and that the extra money might make the "most likely to succeed" student more prone to leave without finishing a degree. For needy students over all, the study found, the extra financial aid had little statistically significant impact on whether students enrolled in college and persisted toward graduation. In some cases, the money even appeared to have a negative effect. But on the most disadvantaged students, it had a positive impact, making them more likely to continue toward a degree.

The Wisconsin Scholars Longitudinal Study began in 2008, after a private scholarship fund was established within the University of Wisconsin System for students who were already eligible for Pell Grants. Recipients were selected by lottery and had to complete minimal paperwork to receive the $3,500 per year. Although the effects of financial aid are frequently studied, having a randomly selected sample -- and a control group -- made the situation unique, said Sara Goldrick-Rab, an assistant professor of education at the University of Wisconsin at Madison who is co-director of the study.

Because data collection began only three years ago, few of the students, all of whom were enrolled at public universities in the state, have earned degrees. Although the results so far are mixed, they are likely to inform the continuing debate over Pell Grants. Even among the program's supporters, such as President Obama, there is a consensus that the program has grown unsustainably and must be cut, with the question now being how such cuts will take effect. A targeted approach, such as the kind the study's authors encourage, could be one way. "We find that students respond to formal cash incentives in unexpected ways," the report's authors, Goldrick-Rab, Douglas N. Harris, James Benson and Robert Kelchen, write in the introduction.

Over the past three years, the researchers surveyed and interviewed 1,500 students: 600 recipients of the extra aid, called Wisconsin Scholars Grants, and 900 students who received Pell Grants but did not get the additional funds. The overall results show a bleak picture for the effects of financial aid: few were positive, and some were negative. Wisconsin Scholars Grant recipients were no more likely to persist in college than were students who received Pell Grants alone, and on average, they did not complete more college credits than did students who did not receive the grant.

For the students who were considered most likely to succeed -- those with parents with bachelor's degrees and higher ACT scores -- the extra grant seemed to make them less likely to persist. Of those students who received only Pell Grants, 94 percent persisted through the 2010-11 school year, when they would have been juniors. For students who also received the Scholars Grants, 79 percent did. "At the very best, they didn’t benefit," Goldrick-Rab said. She suggested that the students might have spent the money unwisely, but said the question of why such students did not benefit needs further study.

"The Wisconsin Scholars Grant, which targets Pell recipients and has similar rules, appears to have done less than the funders had hoped in terms of providing additional cash in the hands of recipients," the researchers wrote in the report.

Some groups, though, did seem to be helped by the extra grant. It increased the share of students on track to graduate within four years, rather than five, although the effect was offset by students who took part-time class loads. This was true mostly for students who earned at least a B average -- perhaps, the authors hypothesized, because many misunderstood the requirements and thought they needed to take a larger class load and earn a higher G.P.A. than they actually did.

The students deemed most at-risk benefited the most. Of those who did not receive the Scholars Grant, 55 percent persisted until 2010-11. Of those who received the additional grant, 72 percent did -- a result that Goldrick-Rab speaks to a need to better target financial aid. "Some people have talked about these guys as being bad bets," she said of the students. "We call them 'at risk.' I don’t think they’re at risk because they’re inherently not capable.... They’re at risk because we’re not supporting them sufficiently."

The study, which includes extensive surveys of students who receive need-based aid, provides valuable anecdotal information about their situations, said Mark Schneider, vice president for new education initiatives at the American Institutes for Research, who has studied the cost to taxpayers of students who drop out. But it does not fully answer the questions of balancing access and success. "We open up access, we take in students, they have a high failure rate," Schneider said. "They've failed. So what have we done?"

Like Goldrick-Rab, he said that financial aid, at least at the state level, should be better targeted, perhaps to students who have the highest levels of unmet need. But the report's authors suggested constructing a policy that directs aid more narrowly without complicating the system is difficult.

The Wisconsin report suggests that aid should be aimed at students who are least likely to succeed academically. That differs from a common suggestion for changing the program: that an academic component should be added to encourage students to perform well in order to keep their grants. "You can and probably should differentiate among students from low-income families," Goldrick-Rab said. "You should probably take into account things like, do they have a parent with a bachelor’s degree?" That information is already collected on the FAFSA, she added.

But giving additional aid to students who were less successful in high school could be a tough sell, she acknowledged, even if it would make such students more likely to succeed in college. "You could argue that’s going to have a perverse incentive," she said, under which students would work less hard in order to get more money. From her conversations with students, she said, she doubted that would occur.

The study will continue until the recipients of the grants graduate. In its concluding paragraphs, the report makes clear that plenty of questions remain: "The responses to aid -- and who, why, and for whom it works -- is clearly far from simple," the authors wrote.


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