The impact of Pell Grant eligibility on community college students' financial aid packages, labor supply, and academic outcomes

In this paper, the authors examine the effects of receiving a modest Pell Grant on financial aid packages, labor supply while in school, and academic outcomes for community college students. Using administrative data from one state, the authors compare community college students just above and below the expected family contribution (EFC) cutoff for receiving a Pell Grant. Between 2008 and 2010, students just below the cutoff qualified for an average of $500 in Pell Grants. The authors find that other financial aid adjusts in ways that vary by institution: students at schools that offer federal loans borrowed more if they just missed the Pell eligibility threshold, but at other schools, students who just missed the cutoff for Pell were compensated with higher state grants. Focusing on the loan-offering schools where students face a discontinuity in total grant aid, the authors find suggestive evidence that receiving a modest Pell Grant instead of additional loans leads students to reduce labor supply and increase enrollment intensity. The authors also provide indirect evidence that students' initial enrollment choices are influenced by an offer of Pell Grants versus loans.

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