Testimony on Performance-Based Scholarships

| Reshma Patel, Lashawn Richburg-Hayes

Testimony submitted to the Advisory Committee on Student Financial Assistance, October 3, 2011.

Increasing the academic success of students in college is a national imperative. Postsecondary enrollment has increased about 300 percent from just over 5.9 million students in 1965 to about 17.5 million students in 2005, but college graduation rates have been fairly stagnant over the same period. Despite the marked successes in college access since the passage of the Higher Education Act of 1965 — which extended need-based financial assistance to the general population for the first time — more work remains to be done to improve college persistence and completion rates.

Low-income students and nontraditional students are at particular risk of not persisting to complete a certificate or degree — often because of competing priorities, financial pressures, and inadequate preparation for college. Financial aid may improve access to and persistence in college for this population. Research suggests that financial aid is positively associated with increased enrollment and increased persistence. One random assignment study that provided need-based grants to students attending public universities in Wisconsin found modest impacts on some academic measures.

One emerging solution for improving academic success among low-income students is a performance-based scholarship, paid contingent on attaining academic benchmarks. Unlike merit-based aid, performance-based scholarships focus on current and future performance rather than prior accomplishments. MDRC’s Opening Doors study of performance-based scholarships in Louisiana showed that such a program had a number of positive effects for students, including students’ credit accumulation, grades, and persistence. The program targeted low-income parents, and, as a result, the study sample was comprised of older, unmarried, and mostly female students. Unfortunately, the devastation inflicted by Hurricane Katrina intervened partway into the study, making it difficult to confirm the program’s long-term effects. Building on these promising findings, MDRC launched the Performance-Based Scholarship (PBS) Demonstration in four states in 2008, followed by an additional two states in 2010.

A number of the sites in the PBS Demonstration serve nontraditional populations, such as low-income parents in Ohio (similar to Louisiana) and older students in need of remedial education in New York. Additionally, all of the programs target low-income students, and the scholarships are paid directly to students, allowing them to use the funds for their most pressing needs, whether books, child care, or other financial obligations that may disrupt their studies. Importantly, the performance-based scholarships are paid in addition to Pell Grants — the main federal source of need-based aid — and other existing financial aid programs. In this way, students have more funds to cover academic and living expenses and can potentially reduce their dependency on loans.

The full version of this testimony, which was submitted to the U.S. Department of Education’s Advisory Committee on Student Financial Assistance, summarizes preliminary results from performance-based scholarship programs in New Mexico, New York, and Ohio, in addition to the original results in Louisiana. While the effects vary across these sites, performance-based scholarships have had impacts on increasing the number of credits attempted and earned, on increasing rates of full-time enrollment, and on reducing loan debt, as well as mixed effects on student persistence.

These mostly short-term results suggest that performance-based scholarships can move the dial on some important markers of academic success. If the programs can show lasting effects after the scholarships are no longer available to the students — and impacts on persistence emerge in later terms — these performance-based scholarships could lead to higher graduation rates and translate into higher earnings. MDRC will follow these longer-range outcomes closely in New Mexico, New York, and Ohio in the coming terms. In addition, forthcoming results from three more states in the PBS Demonstration — Arizona, California, and Florida — will add to the body of knowledge on the effectiveness of these scholarships on improving academic success for low-income students.