Postsecondary enrollment effects of merit-based financial aid: Evidence from Georgia's HOPE Scholarship Program

Traditionally, state and federal postsecondary student financial aid programs have been need-based. On the other hand, large-scale, government-sponsored, merit aid programs are a recent phenomenon. A prominent example is Georgia's HOPE ("Helping Outstanding Pupils Educationally") Scholarship Program initiated in 1993, funded by a state lottery. This study analyzes the policy shift from need-based to merit based aid, as exemplified by the HOPE Scholarship, and its effects on college attendance.; For meritorious Georgia students, HOPE pays the entire tuition at any in-state, 4-year or 2-year public college and to a lesser extent covers costs for students attending Georgia's private schools. Income restrictions, once present, have now been eliminated. Between 1993 and 2000 the HOPE program has subsidized over a half million students in excess of {dollar}1 billion. Its success has inspired at least a dozen other states to initiate HOPE-like programs.; The natural-experiment feature of HOPE is exploited by contrasting enrollment rates in Georgia with those in a set of "control-group" states, to empirically estimate the effect of HOPE on college freshmen enrollments, by institution type and by race using state-level freshman data from the Integrated Postsecondary Education Data System (IPEDS) between 1988 and 1997 for 15 southeastern states including Georgia.; The following is a summary of the main findings. (1) The overall college freshman enrollment rate in Georgia increased between 6 and 11 percent (depending on the specification chosen) due to the HOPE Scholarship between 1993 and 1997. (2) Freshman enrollment rates increased by 11 to 16 percent in all 4 year institutions; HOPE effects observed at 2-year institutions are extremely fragile. These results support the view that HOPE, unlike need-based aid, has primarily served to influence college choice, rather than increase access. (3) These effects are largest at public, 4year institutions for blacks (21 to 24 percent compared to 6 percent for whites), and at private, 4-year schools for whites (12 percent; roughly the same for blacks). (4) Finally, preliminary evidence suggest that freshman student quality proxied by SAT verbal and math percentiles, increased both at Georgia's flagship public university The University of Georgia, and at its lower-tier, state universities, post HOPE.