Does Expanding Financial Aid for Course Retakes Help Low-Income Students Succeed?

This study examines whether a 2011 federal financial aid policy change, which allowed Pell-eligible students to receive aid for course retakes, influenced their academic outcomes. Using administrative data from San Francisco State University, researchers analyzed student records before and after the policy change. The findings show that Pell-eligible students became 3 percentage points (14%) more likely to retake courses where they initially earned a D. They also attempted and earned more credits but did not experience significant improvements in academic standing or enrollment persistence. The policy led students to take riskier courses, especially in STEM and business fields.

Full Citation and Link to Article

Veronica Sovero & Amanda L. Griffith. Second Try’s a Charm: The Impact of Financial Aid Policy on Course Retaking Behavior for Low-Income Students. Education Finance and Policy (Forthcoming). DOI: 10.1162/edfp_a_00437.

Extended Summary

Central Research Question

This study investigates whether a 2011 federal financial aid policy change, which allowed Pell Grant recipients to receive aid for course retakes, affected their academic behavior and outcomes. Specifically, the research asks: Did expanding financial aid eligibility for course retakes increase course repetition, improve academic standing, and enhance student persistence for low-income students? Prior to the policy change, Pell-eligible students had to pay out-of-pocket to retake previously passed courses, potentially discouraging them from improving their grades. By examining this change, the study aims to understand how financial aid influences course-taking behavior and broader academic success.

Previous Literature

Research on financial aid has consistently shown that reducing educational costs improves student retention and graduation rates. Pell Grants have been linked to higher enrollment persistence and increased degree completion (Denning et al., 2019). Financial aid availability allows students to allocate more time to coursework, leading to better academic performance (Nguyen, Kramer, & Evans, 2019).

Course repetition policies are another area of interest. While some argue that grade forgiveness policies encourage students to take risks and persist in challenging coursework (Reed, 2019), others worry that such policies may lead to grade inflation or unnecessary course retakes (Selingo, 2018). Prior studies on grade forgiveness, such as Jiang et al. (2021), found that students were more likely to retake courses after universities introduced broader grade forgiveness policies, particularly in fields with traditionally low grades.

The current study contributes to this literature by examining how a targeted financial aid policy—rather than a general grade forgiveness policy—affected low-income students' course retaking decisions and academic outcomes. By isolating the financial incentive, the study provides insights into whether cost constraints are a primary barrier to academic improvement.

Data

The study uses administrative records from San Francisco State University (SFSU), a public institution with a large proportion of low-income and first-generation students. The dataset includes student-level information from 2008 to 2016, covering several years before and after the 2011 policy change.

Key data points include:

• Student demographics: Pell Grant eligibility, race/ethnicity, gender, and first-generation status.

• Academic performance: Course grades, GPA, credit hours attempted and earned, and enrollment status.

• Course-taking behavior: Frequency of course retakes, types of courses taken, and major selection.

The sample focuses on Pell-eligible students, who were directly affected by the policy, and compares them to non-Pell students as a control group. Approximately 41% of undergraduates at SFSU were Pell-eligible at the time of enrollment.

Methods

The study employs a difference-in-differences (DiD) research design to compare changes in course repetition and academic outcomes for Pell-eligible students before and after the policy change, relative to non-Pell students.

Key methodological elements include:

1. Comparison Groups

   • Treated group: Pell-eligible students (who could not previously use financial aid for course retakes but could after 2011).

   • Control group: Non-Pell students (who were unaffected by the policy change).

2. Regression Models

   • Course Retaking Model: Examines whether Pell-eligible students increased course repetition after the policy change.

   • Academic Performance Model: Assesses GPA, credit accumulation, and academic standing.

   • Persistence Model: Investigates whether students were more likely to remain enrolled.

3. Heterogeneity Analysis

   • Analyzes effects by student ability level (based on SAT scores) to determine whether higher- or lower-achieving students benefited more.

4. Robustness Checks

   • Alternative comparison groups (aided vs. non-aided students).

   • Event-study analysis to confirm parallel trends before the policy change.

     
     

Findings and Size Effects

1. Course Retaking Increased

The policy change led to a 3 percentage point (14%) increase in the probability of Pell-eligible students retaking a course in which they originally earned a D grade.

• Before 2011, Pell-eligible students were less likely to repeat courses due to financial barriers.

• After 2011, their repetition rate increased, closing the gap with non-Pell students.

2. No Significant Improvement in Academic Standing

Despite increased course repetition, Pell-eligible students did not experience significant gains in GPA or academic standing:

• Overall GPA declined slightly (by about 0.05 grade points), suggesting that students were taking more challenging courses.

• Probability of being on academic probation did not change significantly.

3. More Credits Attempted, but Not Always Earned

Pell-eligible students attempted 0.3 to 0.5 additional credits per term, but this did not lead to a proportional increase in credits earned.

• This suggests that students may have enrolled in more difficult courses, leading to lower pass rates.

4. Shift Toward Riskier Courses

After the policy change, Pell-eligible students were more likely to enroll in:

• STEM courses (+3 to 7 percentage points).

• Business courses (+1 percentage point).

• "Roadblock" courses (courses with high failure rates).

This suggests that financial aid expansion encouraged students to take higher-risk, higher-reward courses that they may have avoided previously.

5. No Clear Effect on Retention

The study found mixed evidence on whether Pell-eligible students were more likely to remain enrolled after the policy change:

• Short-term enrollment persistence did not significantly improve.

• Long-term retention effects were inconclusive.

Conclusion

This study provides new insights into the role of financial aid in shaping academic behavior, showing that removing cost barriers led to increased course repetition and risk-taking in course selection. However, these behavioral changes did not translate into better overall academic standing or higher retention rates.

Policy Implications

1. Financial aid policies influence student decision-making

   • When financial barriers are reduced, students adjust their course-taking behavior by enrolling in more challenging courses.

2. Course repetition policies may need additional support mechanisms

   • Simply allowing more students to repeat courses does not guarantee better academic outcomes. Additional interventions, such as tutoring or advising, may be necessary to ensure that retaking a course leads to meaningful improvement.

3. Lower-income students may benefit from targeted academic guidance

   • Since Pell-eligible students shifted toward STEM and business courses with high failure rates, universities could provide academic advising and risk management strategies to help students navigate these choices more effectively.

     
     

Future Research Directions

• Long-term effects on graduation rates and labor market outcomes: Does increased course repetition eventually lead to better employment prospects?

• Psychological and motivational impacts: How does financial aid expansion influence students’ confidence and academic decision-making?

• Institutional differences: Would similar policies have different effects at more selective or better-resourced institutions?

Overall, while financial aid expansion enabled more course retakes, it did not necessarily improve academic progress or retention. Future policies should consider complementary support systems to maximize the benefits of financial aid reforms.