Essays on Financial Aid Application and Distribution Policies

Bird, Kelli, Education - Curry School of Education, University of Virginia
Castleman, Benjamin, Curry School of Education, University of Virginia
Wyckoff, James, Curry School of Education, University of Virginia

The topic of college affordability is more important and salient than ever before. Over the past several decades, the cost of higher education and the characteristics of the population of students participating in higher education have changed dramatically. Inflation adjusted tuition prices increased by 169% percent from 1983 to 2013. During this same period, the share of low-income students who attend college has increased by nearly 50%. Despite this increase in participation, the college graduation rate for low-income students is at best stagnant (Bailey & Dynarski, 2011; Baum, Ma, & Payea, 2013; Cahalan & Perna, 2015).

With widening employment and earnings gaps between college and high school graduates, ensuring that low-income students access and succeed in higher education is critical to mitigate broader income inequality and to increase social mobility. Financial aid is one of the most prominent policy strategies to improve postsecondary outcomes for economically-disadvantaged students. Each year, over 80 percent of full-time, first-time degree/certificate-seeking undergraduate students received some form of financial aid. Collectively, the federal government, state governments, and individual institutions distribute hundreds of billions of dollars in financial aid each year. The majority of these aid dollars are targeted at lower-income students, with the goals of promoting better college access and success for these disadvantaged populations. A large and growing body of rigorous research examines the degree to which financial aid has achieved this goal. The overarching consensus of this research is that financial aid can indeed improve students’ propensity to enroll in college, increase likelihood of persisting beyond their first year, and eventually completing a degree.

Despite the successes of financial aid, there still remain legitimate concerns regarding access to financial aid. The most prominent barrier to financial aid access is the Free Application for Federal Student Aid (FAFSA). A complex form with over 100 questions on individual and household income and assets, leading researchers have argued that the FAFSA is a significant obstacle for many prospective low-income students. For every nine college students who received a Pell grant in 2011-12, there was one student who would have received a Pell grant had they applied, but did not submit a FAFSA. Still, more prospective who did not file the FAFSA did not enroll at all. While prior research has documented the barrier imposed by initial FAFSA filing (Dynarski & Scott-Clayton; Bettinger et al, 2012), I examine two connected yet previously understudied additional obstacles which stem from the FAFSA: deadlines for state grant programs (Chapter 1), and the requirement to refile the FAFSA each year (Chapter 2). I also explore a separate complexity of the financial aid: the decision by institutions of which students receive financial aid. Actors in the higher education market have various and often contradictory motivation to providing financial aid to students. In Chapter 3, I investigate the consequences of two actors interacting – the federal government and individual colleges and universities – on the distribution of an understudied form of financial aid.

There is no federal deadline by which students must file the FAFSA in order to receive federal financial aid. However, most states require students to file the FAFSA in order to receive state grant aid – an important part of many students’ financial aid packages – and the majority of states mandate FAFSA filing deadlines. These deadlines are not arbitrary: most state deadlines occur several months before a student matriculates. However, no prior study has examined at how these state deadlines affect the distribution of financial aid among students. This is my goal in Chapter 1. I use variation in aid application deadlines that occur within states, over time to identify the effect of an earlier deadline on the distribution of state grant dollars. Overall, I find that earlier state deadlines lead to a more regressive distribution of state need-based grants. Specifically, I find that a thirty day earlier deadlines results in a 20 percent decrease in the relative probability that a Pell eligible student receives a state need-based grant, compared to Pell ineligible students. This effect is concentrated among lower-achieving low-income students, who in absolute terms are 10 percent less likely to receive a state need-based grant ¬when facing a thirty day earlier deadline. This first chapter speaks not only to the potential barrier caused by earlier state deadlines, but also the importance of considering the distributional effects of financial aid policies – a topic often not considered in this line of research.

While researchers and policy makers have given considerable attention to the barriers to enrollment created by the FAFSA for prospective college, relatively little attention and few resources have been devoted to helping students refile the FAFSA once they are in college, despite the fact that this must be done each year to maintain eligibility for most financial aid. The goal of my second chapter – joint with Ben Castleman – is to document the rates and patterns of FAFSA renewal for low-income college students, as well to estimate the academic outcomes associated with failure to refile. We find that roughly 16 percent of freshmen Pell Grant recipients in good academic standing do not refile a FAFSA for their sophomore year. Even among Pell Grant recipients in good academic standing who return for sophomore year, nearly 10 percent do not refile a FAFSA. Consequently, we estimate that these non-refilers are forfeiting $3,500 in federal student aid as a result. Failure to refile a FAFSA is strongly associated with students dropping out later in college and not earning a degree within six years, particularly for students at two-year institutions. These results suggest that interventions designed to increase FAFSA refiling may be an effective way to improve college persistence for low-income students.

In Chapter 3, I focus on a less well-known and understudied form of federal aid: campus-based aid. Campus-based aid consists of three need-based programs: Perkins loans, Federal work-study, and the Federal Supplementary Education Opportunity grant. Unlike other federal aid, funding allocations for these programs are supplied directly to participating colleges and universities, who in turn distribute the aid to students. The process by which institutions distribute funds is both flexible under regulatory guidelines, and opaque to students and researchers. In Chapter 3, my goal is to provide critical information for policy decisions regarding the future of campus-based aid, as well as gain a better understanding of how institutions make complex decisions regarding aid distribution. Consistent with prior research, I find, through an analysis of institution-level data, that campus-based aid is concentrated among students attending higher-cost private institutions, where per student disbursements are as much as five times greater than lower-cost institutions. Overall, I find that a minority of eligible students receive campus-based aid. My results suggest that institutions are using campus-based aid – particularly Federal work-study – to supplement the financial aid packages of students who they view as more desirable.
The research covered in these three chapters is novel and makes significant contributions to the existing literature. First, I identify and describe potential barriers to financial aid access that have previously received little attention in the financial aid literature. Second, I investigate not only the impacts of aid but important questions of how aid is distributed among students. In other words, should we care about equity in the distribution of financial aid? Given the current conditions in the higher education and job markets described in this introduction, I presume that many policy makers and student advocates would answer these questions with an emphatic “yes.” While I do not pass judgment on these normative questions in the text of the following three chapters, they were written with the intention to inform future debates and decision-making on the topic.

PHD (Doctor of Philosophy)
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