Department of Educational Administration
George Sanchez Building
The University of Texas at Austin
Austin, TX 78712
Institutional Affiliation: Teachers College, Columbia Univ.
NBER Working Papers and Publications
|October 2016||Performance Standards in Need-Based Student Aid|
with Judith Scott-Clayton: w22713
College attendance is a risky investment. But students may not recognize when they are at risk for failure, and financial aid introduces the possibility for moral hazard. Academic performance standards can serve three roles in this context: signaling expectations for success, providing incentives for increased student effort, and limiting financial losses. Such standards have existed in federal need-based aid programs for nearly 40 years in the form of Satisfactory Academic Progress (SAP) requirements, yet have received virtually no academic attention. In this paper, we sketch a simple model to illustrate not only student responses to standards but also the tradeoffs faced by a social planner weighing whether to set performance standards in the context of need-based aid. We then use regres...