When financial aid is scarce: The challenge of allocating college aid where it is needed most

Abstract

Inequality in college completion by income is a persistent problem, often addressed through financial aid to lower-income students. Prior research has found mixed effects of financial aid, but research designs have not identified effects for the poorest students who may benefit the most. This study exploits an eligibility cutoff induced by first-come first-served allocation of funds in the state of Wisconsin. The analysis focuses on two-year technical colleges, where there was a large funding shortage affecting students at all income levels. I find positive effects of grant aid in reducing dropout and supporting degree completion, with larger positive effects for the poorest students.