The effects of merit-based financial aid on academic choices in college
Lee, Kyung Hee
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A common justi¯cation for HOPE-style merit-aid programs is to promote and reward academic achievement, thereby inducing greater investments in human capital. However, grade-based eligibility and retention rules encourage other behavioral responses. Using data extracted from the longitudinal records of all undergraduates who enrolled at the University of Georgia (UGA) between 1989 and 1997, I estimate the e®ects of HOPE on grade-point average (GPA), course enrollment, withdrawal and completion, and the choice of courses and program of study, treating non-residents as a control group. First, I ¯nd that HOPE has increased resident freshman GPA by 0.13 point, while HOPE's e®ect on GPA is weak after the ¯rst year. Second, I ¯nd that HOPE has decreased full-load enrollments and increased course withdrawals among resident freshmen. The combination of these responses results in an 11% lower probability of full-load completion and an annual average reduction in credits completed of 1.0. The latter implies that between 1993 and 1997 Georgia-resident freshmen completed 15,710 fewer credit hours or 3,142 individual course enrollments than non-residents. Third, the scholarship's in°uence on course-taking behavior is concentrated on students with GPAs on or below the scholarship-retention marginand increased with the lifting of the income cap. Fourth, these freshmen credit-hour reduc- tions appear to represent an intertemporal substitution, not a general slowdown in academic progress. Next, I ¯nd that HOPE has led students to choose easier classes and avoid more chal- lenging areas of study. Speci¯cally, residents diverted an average of 1.65 more credits from the regular academic year to the ¯rst summer term after their matriculation, which amounts to a 72% rise in summer course taking. Also residents completed about 1.2 fewer credit hours in math and science core courses than non-residents during the ¯rst two years, and almost 0.2 more credits in each core area of arts and humanities and social sciences but not more in the math and sciences area during the ¯rst summer. Finally, the propensity to take easier courses extends to pursuing a less challenging undergraduate major. Average residents were 1.2 percentage points more likely to choose education majors upon matriculation than average non-residents.