NCPA - National Center for Policy Analysis

Grants Don't Increase Low-Income Student Enrollment

April 30, 2003

In order to attract more low-income students, one unnamed Northeastern University changed its financial aid policy so that the entire loan portion of the package for low-income students was replaced with grants. This is more expensive for the institution, but the hope was it would prevent qualified low-income students from declining the University's offer of admission for financial reasons.

In a study, authors David Linsenmeier, Harvey Rosen and Cecilia Rouse examined the effects of the change in the financial aid policy. They found that the new program was only a borderline success:

  • Substituting grants for loans increased the likelihood of a low-income student actually starting college at the school by only 3 percentage points, and this number is not statistically significant.
  • In the case of low-income minority students, the likelihood of entering this institution grew between 8 and 10 percentage points, with statistical significance at the 10 percent level.

The fact that the program appears to have had a larger effect on minorities than on non-minorities is consistent with the notion that minorities' expectations of their post-college earnings are not as certain as those of their non-minority former college colleagues. So, the authors conclude, colleges and universities should take into account the importance of expectations when analyzing and designing financial aid programs.

Source: David R. Francis, "Does Grant Aid Attract More Students than Loans?" National Bureau of Economic Research, NBER Digest, March 2003; based on David Linsenmeier, Harvey Rosen and Cecilia Rouse, "Financial Aid Packages and College Enrollment Decisions: an Econometric Case Study," National Bureau of Economic Research, Working Paper, No. 9228, October 2002.

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