Federal Policies, State Responses, and Community College Outcomes: A Test of an Augmented Bennett Hypothesis

Abstract

We estimate the impact of increases in Federal student aid and funding, such as the recently proposed American Graduation Initiative (AGI), on the outcomes of community colleges, including enrollments, list and average tuitions, and variables related to educational quality. We develop a model of state-level education policy in which state policy makers, who may have objectives and constraints that differ from those of Federal policy makers, respond to changes in Federal policies. Our empirical specification treats state and institutional policy variables as endogenous, and we interpret the coefficients as measuring the responses of state and institution officials to changes in Federal policies. We simulate the effects of the AGI and find little evidence that state policy makers recapture Federal resources. We find the AGI will have a significant effect on educational quality but a limited effect on enrollments. An equivalent increase in Federal student aid would have greater impact on access and enrollments, but decrease educational quality.

Keywords: demand for schooling, educational finance, expenditures, grants, state and federal aid

JEL Classification: I22, I28, H52, H75