Financial Aid and the Line Between College and Work February 2013 Celeste K Carruthers and Umut Ozek University of Tennessee and AIRCALDER 1 Essential Questions Financial aid has been shown to increase college enrollment persistence and graduation ID: 334569
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Slide1
Losing HOPE
Financial Aid and the Line Between College and WorkFebruary 2013Celeste K. Carruthers and Umut OzekUniversity of Tennessee and AIR/CALDER
1Slide2
Essential Questions
Financial aid has been shown to increase college enrollment, persistence, and graduation1 Caveat: results are not universal2 Why is financial aid important for students?
Why do students work so hard to avoid losing aid? 3
Non-pecuniary loss aversion?
Financial need?
1
Dynarski 2000,2003; Deming & Dynarski 2009; Scott-Clayton 2011; Castleman & Long 20122 Hansen 1983; Cohodes & Goodman 2012; Sjoquist & Winters 20123 Cornwell et al. 2005; Scott-Clayton 2011
2Slide3
Contributions
To date, we know that students who lose Georgia's HOPE accumulate fewer credits and receive fewer degrees (Henry et al. 2004) and tend to be concentrated in more technical majors (Dee & Jackson 1999).We provide the first causal evidence of students' college/work substitution patterns in the wake of losing financial aid.Preview: less college, more work
Beyond the scope of this paper: normative statements on optimal scholarship retention policies.
3Slide4
The Tennessee HOPE scholarship
Financed by the state lotteryFirst available to fall 2004 freshman (and some sophomores)Up to $4,000/year grant for four-year students, $2,000 for two-year students
Low eligibility threshold and (comparatively) high renewal threshold.Renewed with continuous enrollment, GPA of 2.75 after 24 hours
, 3.0 after
48, 72,
and 96 hours.
About 1/2 of HOPE scholars lose their scholarship midway through college.4Slide5
Data
Administrative records for 2003-2006 entering cohorts in Tennessee two-year and four-year institutions, followed through fall 2008.Scholarship status, credits attempted per term, major(s), college GPA, demographics, distance from permanent address.Merged with FAFSA and ACT records for income and ACT controls
.Merged with quarterly earnings data for every quarter (enrolled or not), 2003-2008.
Merged
with full-time undergraduate tuition and fees (IPEDS).
5Slide6
Descriptive Statistics
All
4-year students
2-year students
Credit load (attempted credits this term)
13.2
14.2
11.4
(
3.4)
(
2.7)
(
3.9)
Different major from last term
0.15
0.17
0.12Any earnings while enrolled (half-year) 0.730.700.78Earnings while enrolled (half-year, thousands, 2005$) 2.62.23.4(3.2)(2.9)(3.4)Exiting college: working but not enrolled next term 0.120.060.22 Undeclared major 0.230.300.13Student-years584,925369,044215,881Students116,44073,81667,823Standard deviations in parentheses below continuous variable means
6Slide7
Descriptive Statistics
All
4-year students
2-year students
Lost HOPE
0.19
0.21
0.14
Scholarship value (in thousands)
1.39
1.95
0.43
(
1.82)
(
1.98)
(
0.88)Cumulative GPA 2.202.381.90 (1.32)(1.26)(1.36)Missing GPA 0.050.050.06Tuition and fees (000s) 4.044.982.42 (1.33)(0.60)(0.20)Male 0.440.450.43Black 0.160.170.15White 0.780.770.80Family income $<$ 60,000 0.470.440.52Missing family income
0.08
0.05
0.14Student-years584,925369,044215,881Students116,44073,81667,823Standard deviations in parentheses below continuous variable means
7Slide8
Empirical Strategy
1(
losthope
it
)
– equal to one in semesters after HOPE loss.
η
1
(t-t
0
)*1(
before
it
) +
η
2
(t-t
0
)*1(afterit) - local linear function of time until/since HOPE lossβt*GPAit - college GPA, effect allowed to vary by tαi, αt - individual and semester sequence FEZitγ - time-varying student and institution controls, linear time trend. 8Slide9
Empirical Strategy
H
it
- value of HOPE scholarship in 2005$.
9Slide10
Identifying Variation in HOPE
2004-2006 cohortsDeviations from mean HOPE status or value, across and within students.Within-student, across αt.Within-semester sequence, across
αi
Within-student variation is from the failure to renew HOPE.
2003 cohort
Deviations from mean HOPE status or value, across and within students
.This cohort was eligible to gain HOPE in 2004, then held to renewal standards thereafter.10Slide11
Internal Validity Challenges
Students who lose HOPE are of lower ability.αi controls for this class of heterogeneity.
Students about to lose HOPE are on Yit
trajectories that confound treatment with other factors.
η
1
(t-t0)*1(beforeit) + η2(t-t0)*1(afterit) controls for pre-loss and post-loss trends common to students who lose the scholarship.Typically, GPA starts low and climbs just before HOPE loss.
11Slide12
College GPA before and after HOPE loss
12Slide13
Credits attempted before and after HOPE loss (regression-adjusted)
13Slide14
Exit rates before and after HOPE loss (regression-adjusted)
14Slide15
Results – 2004-2006 cohorts
(1)
(2)(3)
(4)
Outcome
Credits
this termChanged major (0,1)Lost HOPE (0,1)
-0.996***
(0.025)
-0.006**
(0.003)
HOPE value (000s)
0.684***
(0.007)
0.012***
(0.001)
Four-year public (0,1)
1.573***
(0.117)0.408***(0.107)0.109***(0.010)0.088***(0.010)Terms until loss (negative)0.149***(0.012)0.390***(0.012)0.007***(0.001)0.014***(0.001)Terms since loss0.067***(0.009)0.167***(0.009)-0.001(0.001)0.002*(0.001)Tuition and fees (000s)0.734***(0.045)0.772***(0.040)-0.010**(0.004)-0.009**(0.004)Adjusted R20.130.180.110.11Nit = 421,615 student-years. Cluster-robust standard errors in parentheses 15Slide16
The impact of HOPE loss versus an equivalent tuition increase on attempted credits
16Slide17
Results – 2004-2006 cohorts
(1)
(2)(3)
(4)
Outcome
Any earnings this term (0,1)
Earnings (000s)Lost HOPE (0,1)-0.006*
(0.003)
0.170***
(0.019)
HOPE value (000s)
0.001*
(0.001)
-0.027***
(0.004)
Terms until loss (negative)
0.005***
(0.002)
0.005***(0.001)0.022**(0.009)0.042***(0.008)Terms since loss0.002(0.001)0.002(0.001)0.112(0.073)0.032**(0.012)Adjusted R20.020.020.090.09Nit = 421,615 student-years. Cluster-robust standard errors in parentheses 17Slide18
Results – 2004-2006 cohorts
(1)
(2)(3)
Outcome
Undeclared
major (0,1)
Work but no college next term, and no degree (0,1)Lost HOPE (0,1)0.054***(0.003)
0.070***
(0.002)
HOPE value (000s)
-0.017***
(4.5E-05)
Terms until loss (negative)
-0.021***
(0.002)
-0.034***
(0.001)
-0.029***
(0.001Terms since loss-0.002*(0.001)-0.002***(0.001)0.001(0.001)Adjusted R20.150.160.16Nit = 421,615 student-years. Cluster-robust standard errors in parentheses 18Slide19
Results – 2003 cohort
(1)
(2)(3)
(4)
Outcome
Credits this term
Changed major (0,1)Earnings (000s)Leaving college (0,1)HOPE value (000s)
0.334***
(0.012)
0.013***
(0.001)
-0.046***
(0.008)
-0.013***
(0.001)
Terms until loss (negative)
-0.040***
(0.012)
0.009***(0.001)0.014(0.010)-0.017***(0.001)Terms since loss0.123***(0.018)-0.003*(0.002)0.014(0.018)-0.003***(0.001)Adjusted R20.110.110.120.12Nit = 163,310 student-years. Cluster-robust standard errors in parentheses 19Slide20
Inference
For students who stay in college after HOPE, the first term without HOPE is associated with 0.996 fewer credits (7.6% of the mean)$170 additional earnings (6.4% of the mean)5.4 ppt higher likelihood of
not declaring a major (23.2% of the mean)Little to no impact on labor force participation.
Extensive margin impacts appear much stronger than intensive margin impacts.
In the first term without HOPE, there is a 7.0
ppt
higher likelihood of exiting college for the workforce without a degree (58.8% of the mean exit rate)20Slide21
Heterogeneous Impacts of Losing HOPE: 2004-2006 cohorts
(1)
(2)
(3)
Outcome
Credits this term
Earnings (000s)Leaving college (0,1)All students -0.996***(0.025)
0.170***
(0.019)
0.070***
(0.002)
Family income < 60,000
-1.092***
(0.038)
0.150***
(0.027)
0.090***
(0.004)
Family income at least 60,000-0.949***(0.036)0.199***(0.028)0.054***(0.003)Started in a four-year college-0.667***(0.028)0.184***(0.025)0.050***(0.003)Started in a two-year college-1.561***(0.056)0.116***(0.033)0.114***(0.005)Nit = 421,615 student-years. Cells report “lost HOPE” coefficient estimates for different subgroups. Cluster-robust standard errors in parentheses 21Slide22
Conclusions
Loss of financial aid decreases engagement with college and shifts the college/work margin towards work.Attempted hours decrease.The likelihood of declaring a major decreases.Earnings increase.
The propensity to leave college increases.Findings are pronounced for the lower-income half of students, and for students who start in two-year colleges.
Implications: money matters, especially at the extensive margin of college enrollment.
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