A Difference-in-Difference Analysis of "Promise" Financial Aid Programs on Postsecondary Institutions

This study examines the impact of "Promise" programs on postsecondary institutions' decision-making. Promise programs have garnered widespread attention in the U.S., especially after the announcement of the Kalamazoo Promise, but relatively little scholarly research. Promise programs provide grant aid to all students from a particular geographic location and make an early financial aid commitment. Using a 2000-2014 panel dataset, this paper employs a quasi-experimental difference-in-difference methodological design to consider the impact of Promise programs on postsecondary institutional behavior. We find that Promise programs influence behavior related to tuition and fee setting, and grant aid awards. We also uncover a notable finding that two- and four-year institutions do not react to Promise programs in the same manner.

The growth and popularity of "Promise" programs has garnered widespread attention, especially after the announcement of the Kalamazoo Promise program in 2005, but relatively little scholarly research. Promise programs provide an early commitment of grant aid, to students to attend college, based on geographic stipulations. Today, Promise programs span the nation ranging from programs run by single postsecondary institutions to statewide, publicly-funded programs like the Tennessee Promise. Hemenway (2018) and Perna and Leigh (2018) outline the characteristics of several hundred existing programs, note the rapid expansion of Promise programs, and estimate hundreds of programs currently in the developing stages. This study examines the influence of Promise programs on the behavior of U.S. postsecondary institutions.

Promise programs provide advanced information about college affordability for students by making an early commitment to fund postsecondary studies. Promise programs deliver a unique commitment because eligibility is derived from easily interpreted qualifications that are stated upfront. Promise programs do not use an individual selection process or consider student characteristics, such as financial need or academic merit; rather students qualify based on geographic stipulations, such as longevity within a school district, or geographic residency. Some programs commit to pay for college expenses as early as kindergarten so long as a student maintains residency, as is done with the Kalamazoo Promise (Miller-Adams 2010). This stands in contrast to traditional student financial aid processes in which students often do not receive formal financial aid offers until their senior year of high school.

Many Promise programs were created as economic development programs for a particular city or rural area, and are financed by local philanthropies or municipal funds. Promise programs have been found to promote population stability, increased property values, increased consumer spending, and job creation (Bartik, Eberts, and Huang 2010; Hershbein 2013; LeGower and Walsh 2014). The study of Promise programs has the potential to provide important information about public finance for higher education and incidence, since a large number of existing and developing programs rely on public dollars for support. For example, Promise programs created through "Promise Zones" in Michigan are funded through public-private partnerships. Likewise, Hammond Indiana's College Bound Scholars is funded primarily through government expenditures. A theoretical debate about the efficiency of using public funds to support Promise programs can be found in Dowd (2008). Our research contributes a critical component to this discussion by providing an empirical analysis of how institutions alter pricing with regard to tuition, fees, and grant aid following the introduction of a community-based Promise program. In addition, Promise programs provide a rare opportunity to consider the role of local funding for higher education, and the interaction of these scholarships with federal funding for postsecondary education. In terms of policy, this study also provides valuable information for Promise program funders about the effectiveness and unintended consequences of these programs.

Using a panel dataset with data from fall academic years 2000-2014, this paper employs a quasi-experimental difference-in-difference methodological design to explore the impact of sub-state-level Promise programs on institutional behavior. The primary research question in this work tests how institutions alter tuition and required fees after becoming eligible to receive Promise funds from enrolling Promise-eligible students. In addition, we consider the influence of Promise programs on awarding...