The Impact of State-Funded Merit Aid on the Retention of College Graduates

Abstract

We investigate the relationship between broad-based merit aid programs sponsored by U.S. state-level governments and the retention of college graduates. The impact of these programs is still debated and research in this field is limited. Using a unique data set for the 1988-2015 period and employing a difference-in-differences approach with adjustments for endogeneity bias, we find that: 1) states offering merit aid have higher workforce retention rates of college graduates, 2) the effect is strongest immediately after graduation and decreases over time, and 3) states with larger spending on merit aid have higher average retention rates of graduates that may be weakening faster over time compared with lower-spending states.