Performance Standards in Need-Based Student Aid

College attendance is a risky investment. But students may not recognize when they are at risk for failure. Academic performance standards attached to financial aid 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.

This paper finds negative impacts on persistence but positive effects on grades for students who remain enrolled for cademic performance standards attached to financial aid. After three years, the negative effects appear to dominate. Effects on credits attempted are 2–3 times as large as effects on credits earned, suggesting that standards increase the efficiency of aid expenditures. But it also appears to exacerbate inequality in higher education by pushing out low-performing low-income students faster than their equally low-performing, but higher-income peers.