Losing HOPE: Financial Aid and the Line Between College and Work

Celeste K. Carruthers, University of Tennessee-Knoxville

Although a wealth of research has shown that financial aid reduces hurdles to college enrollment, relatively little is known about how aid affects students after they are enrolled, much less how students react to the common occurrence of losing aid midway through their college careers. Losing HOPE: Financial Aid and the Line Between College and Work, a working paper published by the National Center for Analysis of Longitudinal Data in Education Research (CALDER) and co-authored by AIR, finds that losing financial aid weakens students’ engagement with college.
Using longitudinal data on four cohorts of Tennessee public college students, the authors find that failing to renew merit scholarships can lead to 
•     A lower course credit load,
•     A higher likelihood of not declaring a major,
•     An increase of labor force participation and earnings while enrolled, and
•     An increase in the likelihood of leaving college without a degree for the workforce.
For students who stay enrolled, the effect of losing their scholarship on credits and earnings is fairly small. Scholarship funds are replaced with labor market earnings at a rate of just seven to 16 percent, on average. There is, however, a large impact on continued enrollment. Losing the scholarship is associated with a five to seven percentage point increase in withdrawal from college.

These findings have implications for scholarship retention policies and have practical implications for how academic advisers and financial aid administrators can potentially improve student outcomes after the loss of merit aid (by pointing students toward other aid options, for instance). More broadly, this paper provides evidence that for some students, merit scholarships have meaningful bearing on the commitment to college after enrollment.