Early Bird Gets the Worm? The Implication of Application Deadlines on the Distribution of State Grant Aid

Given recent trends of rapidly increasing tuition prices, stagnant college graduation rates for low-income students, and a widening employment and earnings gaps between college and high school graduates, ensuring that low-income students access and succeed in higher education is critical to mitigate income inequality and improve social mobility. While the research on the effectiveness of financial aid at increasing college enrollment and graduation is promising, if a goal of financial aid is to reduce income inequality and improve social mobility, understanding how policies affect who receives aid may be as important as understanding the degree to which students benefit from aid. Specifically, there remain legitimate concerns regarding the equity of access to financial aid. Certain policies, such as requiring students to complete complex applications, create barriers to financial aid access. Such barriers may be more pronounced for lower-income households that lack the time, resources, and financial literacy to successfully navigate the financial aid system. As such, barriers to aid may result in lowerincome students being disproportionately less likely to complete all eligibility requirements, thereby exacerbating income gaps in college enrollment and graduation. However, there is a dearth of research on how key details of financial aid programs affect the distribution of aid dollars across different student groups. As a result, the distributional impacts of financial aid policies are not well understood. The contribution of this paper is to explore how a specific characteristic of financial aid policies affect the distribution of aid dollars across income groups: FAFSA filing deadlines for state grant programs. State governments are an important source of financial aid. Collectively, state governments provide $9.5 billion in grant aid each year, constituting 13.3% of total state spending on higher education. The vast majority of states’ grant programs require prospective recipients to file the FAFSA. While there is no FAFSA filing deadline for the Federal Pell Grant or Stafford Loans, most states set deadlines by which students must file the FAFSA in order to be considered for state grant programs. If an eligible student does not meet an application deadline, he may forfeit thousands of dollars in state-provided financial aid. Given that low-income students file the FAFSA later than their higher-income peers, state application deadlines may have dramatic implications for the distribution of aid dollars by income. Unlike prior work that considers the FAFSA as a barrier to financial aid, which focuses on the extensive margin of FAFSA filing, I show that it is not just important if a student applies for financial aid, but also when the student applies. Using within-state, over-time variation in state FAFSA deadlines, I estimate the effect of state deadlines on the distribution of state grant dollars. Specifically, I estimate the effect of a later state deadline on the probability that a low-income student will receive the state grant, compared to higher-income students. Overall, my results show that earlier deadlines create a more regressive distribution of need-based financial aid; that is, a larger proportion of state grants are awarded to less financially needy students. Specifically, I find that a thirty day earlier deadlines results in low-income students being 14% less likely to receive a state grant, relative to their higherincome counterparts. I find that this result is driven by lower-achieving low-income students, a population that is perhaps in most need of financial assistance in order to succeed in college. Given the general goal of need-based grant programs to improve college access and success for low-income students, this result is concerning. This result is also likely to be of particular interest to states, as aid dollars are not reaching their intended recipients.