The Enrollment Effects of Merit-Based Financial Aid: Evidence from Georgia's Hope Scholarship

Abstract

This paper examines the effects of Georgia's merit-based HOPE Scholarship on college enrollments. Until the late 1980s, only a small fraction of total student aid was allocated on the basis of merit, but in the last decade state governments have stepped in,distributing billions of dollars in "HOPE-style" merit aid. Introduced in 1993, the HOPE Scholarship covers tuition, fees and book expenses for students attending Georgia public colleges, and provides a subsidy of comparable value to students attending in-state private colleges, without any income restrictions. Treating HOPE as a natural experiment, we contrast enrollment rates in Georgia with those in the other member states of the Southern Regional Educational Board using IPEDS data for the period 1988-97. We estimate that the scholarship increased the overall freshmen enrollment rate by 6.9 percentage points, with the gains concentrated in 4-year schools. We also find that HOPE raised the enrollment rates of both blacks and whites in Georgia schools, with the state's historically-black institutions playing an imprtant role. Finally, our results suggest that the total HOPE-induced increase represents about 12 percent of high-school graduates who qualified for the scholarship and 21 percent of those who took the award. However, because the overall HOPE effect involves enrollees at 2-year schools who are more likely recipients of the non-merit-based HOPE Grant, the total program enrollment response amounts to less than 10 percent of all freshmen program beneficiaries.

JEL Classification: I2