More Student Aid Does Not Mean Higher Graduation Rates

By Richard Vedder

One of the dirty little secrets in higher education is that massive increases in federal student financial aid over the last generation have been accompanied by a slowing down, not an acceleration, of the rate of growth in college attainment. Writers like Claudia Goldin, Larry Katz, Bill Bowen and Mike McPherson have been writing books dealing with the slow down, and all recommend more, not less financial aid to deal with the problem. If giving X amount of aid doesn't work, give 2X.

The reasons for this seemingly strange aid/attainment relationship are many, but two factors are critical. First, higher amounts of aid have contributed to rising tuition costs neutralizing the positive impact of the aid itself on college affordability. Secondly, incremental students lured by financial aid to go to college are often marginally prepared academically.

When we run regressions on the relationship between state assistance for higher education and student enrollment, the correlation is usually positive (although less strong than you might expect). However, when we relate state financial assistance for higher education to adult college attainment, the correlation is usually zero or even negative. This suggests that rising aid may be associated with rising dropout rates that offset the effects of rising enrollment.

A new study by Matthieu Chemin of the U. of Quebec, unearthed by the indefatigable Doug Lederman of Inside Higher Ed, makes the point. The author examined huge increases in financial aid for lower income students in Quebec. The money did increase college enrollment rates, but not graduation rates. Chemin concluded: "These results..cast doubt....at needs-based grants...to improve graduation rates." It is nice to see our findings confirmed by others.

Speaking of financial aid, the State of Michigan is America's leading economic basket case, hands down, and the state government has been forced to do a lot of retrenching. The Governor wants to keep their HOPE-scholarship like program that gives third and fourth year university students large grants automatically. The GOP leaders in the legislature, worried about a precarious budget situation, want to end the program. I would have to say on the basis of the research that we have done or seen, my sympathies are with the GOP position.