Impact of Need-Based Financial Aid on Student Persistence at Public Institutions: An Application of the Regression-Discontinuity Design

Abstract

We take advantage of a unique program design to estimate the effect of financial aid on first-to-second year persistence. In Tennessee, need-based financial aid is given to eligible students on a first-come, first-served basis, based on when the student files the Free Application for Federal Student Aid. Using a regression-discontinuity design, we compare the persistence among eligible students who received need-based aid in the first and second years of college with eligible students who failed to to apply before the undisclosed cutoff date in the second year. Students at the University of Tennessee who retained their financial aid were 9.5 percentage points more likely to persist than students who lost their financial aid.

Keywords: Postsecondary Education; Financial Aid; Persistence; Higher Education; Policy

JEL Classification: J08, J18, J24