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. Other financial aid adjusted in ways that varied 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 found suggestive evidence that receiving a modest Pell Grant instead of additional loans led students to reduce labor supply and increase enrollment intensity. Indirect evidence also suggests that students’ initial enrollment choices were influenced by an offer of Pell Grants versus loans.
