Financial Aid and College Graduation

Using data for about 3,800 colleges and universities in the US, this paper examines the effects of financial aid on graduation rates. It estimates a linear regression model with graduation rates as the dependent variable and financial aid share (in educational cost) and percentage of students receiving Pell grant as the independent variables of interest along with control variables that reflect demographic and institutional characteristics. The results from the analysis indicate that financial aid in general and Pell grant in particular have significant negative impacts on on-time graduation (those who graduate within the expected time) rate. For extended-time graduation (those who take more than the expected time to graduate) rate, they have either no effect or marginally significant negative impact.