Targeting financial aid to potentially improve retention among Pell Grant recipients

How do financial aid allocation strategies affect student retention and completion?

With funding for financial aid constrained at the federal, state, and institutional levels, interest in the answer to that question is very high.  The research in this area is not extensive, so I was excited when Noel-Levitz had the opportunity to collaborate with the American Institutes for Research and the Louisiana Board of Regents to explore these issues in Louisiana. With the generous support of the Bill and Melinda Gates Foundation, we are conducting both the Louisiana research and parallel studies in the state of Oklahoma.

Historically, one problem with trying to use financial aid to impact student success rates is the relatively modest return for each incremental dollar invested. Institutions have had to spend considerable amounts of gift aid—grants and scholarship that the student does not have to repay, including Pell Grants, state programs, and institutional aid—to achieve even small gains in retention . (For a more detailed examination of the issue, see Eric Bettinger’s presentation for the American Enterprise Institute, “Financial Aid: A Blunt Instrument for Increasing Degree Attainment.”) Our initial quest in Louisiana was to determine whether a redistribution of the state’s financial aid could overcome this problem and have a meaningful impact on student retention in a cost-neutral fashion.

To date, our research findings have been very encouraging as we continue to look for ways to use financial aid to reduce barriers to enrollment.  Using precise data analysis, we have discovered that it is possible to identify and precisely target financial assistance where it will have the most impact on student retention rates while also optimizing the costs to the state.

The report, Targeting Financial Aid for Improved Retention Outcomes, contains the detailed results; a few of the highlights follow:

1. In predicting fall-to-fall same school retention, high school grade point average is the strongest academic preparation variable.
We knew that we had to control for academic preparation before testing the impact of financial aid on student retention behavior. Consistent with previous studies, we found that high school grade point average was the strongest preparation indicator, explaining two-thirds of the variance in year-over-year student retention.

2. Pell Grants help overcome differences in retention rates across income levels among students with equivalent academic preparation.
We saw the effects of Pell Grants on retention rates when we compared Pell Grant recipients with other students with demonstrated financial need and comparable academic preparation who were not eligible for Pell Grants. Once we controlled for high school grade point average, the data showed that Pell Grant recipients retained as well as students who filed a FAFSA and demonstrated financial need, but did not receive a Pell Grant! This parity in performance is encouraging given the vast difference in family income between the Pell students ($24,675) and students with demonstrated financial need without Pell Grants ($59,887).  These data at least suggest that Pell Grants play an important role in supporting current retention rates.

3. After controlling for high school performance, the level of students’ Need Met With Gift Aid is associated with retention.
To measure the interaction of federal, state, and institutional gift aid, we calculated each student’s financial need and the percentage of that need that was met with gift aid from all sources (Need Met With Gift Aid). We discovered that as the percentage of Need Met With Gift Aid increased among Pell Grant recipients, so did the fall-to-fall retention rate. Importantly, this pattern held within each high school GPA range. For example, among students with a high school grade point average of 3.0-3.49, the retention rate among students with less than 30 percent of their Need Met with Gift was 49 percent.  When the gift percentage was 80 percent or more, the retention rate improved to 77 percent.

4. An important “flex point” was found in the 55-60 percent range of Need Met With Gift Aid.
One of the major goals of this study was to identify any “flex points” that lead to diminishing returns on the investment of scarce financial aid dollars toward improving student retention. We found that the positive impact of increasing the percentage of Need Met With Gift Aid declines substantially once 55-60 percent of a student’s need is met with gift aid. For example, increasing the gift percentage from less than 30 percent to 60 percent corresponds to a 22 percentage point increase in the retention rate, while increasing the percentage of Need Met With Gift Aid from 60 percent to 70 percent increases retention by only 3 points.

5. Simulations showed that retention could be improved by re-directing the state’s GO Grants based on students’ Need Met With Gift Aid.
To test the effects of redirecting aid from students with aid packages above 55 percent of Need Met With Gift Aid to students with aid packages below that point, we conducted a series of simulations. These showed that the potential gains in retention were particularly impressive among students with less than 50 percent of their Need Met With Gift Aid. As a group, their retention rate increased from 56 percent to 63 percent and 189 additional students were retained. Meanwhile, the overall retention rate increased 1.5 percentage or 123 students. Furthermore, the redistribution of aid yielded a potential savings of approximately $780,000 to the state over two years, or nearly $400,000 per year.

The Regents are now using these findings to develop proposals to re-direct a diminishing pool of GO Grant funding to students with the weakest overall financial aid awards.  Our next step in the project is to compile similar data in Oklahoma to make certain the findings are not idiosyncratic. We are also looking at the impact of financial aid on student retention in the two-year sector in Louisiana. We plan to release several additional studies in 2012. I’ll be sure to report on those as they are released.

If you would like to talk about this research or share ways that your institution is balancing student need and success with institutional and state resources, please reply to this column or e-mail me.