When Financial Aid is Scarce

The Challenge of Allocating College Aid Where it is Needed Most

by Drew M. Anderson

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Inequality in college completion by income is a persistent problem, often addressed through financial aid to students. Prior research designs have not identified effects for the poorest students most in need of financial aid. I exploit an eligibility cutoff in the timing of filing an aid application, induced by first-come first-served allocation of limited funding in the state of Wisconsin. I focus on two-year technical colleges, where there was a large funding shortage affecting students of all income levels. I find modest positive effects of grant aid in reducing dropout and supporting degree completion, driven by larger positive effects for the poorest students.

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