Report Warns Against Tying Student Aid to Measures Like Graduation Rates

August 01, 2013

Awarding student financial aid to colleges based on outcome measures, like graduation rates, could harm low-income students and the colleges that serve them, according to a new analysis by the Advisory Committee on Student Financial Assistance.

The analysis appears in a policy bulletin, “Measure Twice: The Impact on Graduation Rates of Serving Pell Grant Recipients,” released by the independent and bipartisan advisory committee on Wednesday. The new report comes just weeks after committee raised serious concerns about efforts to tie federal student aid to college-completion rates—an idea that has been embraced by a number of advocacy groups in the run-up to the next reauthorization of the Higher Education Act.

In the new report, the committee examines correlations between a college's six-year graduation rate and three other factors—the percentage of first-time students who are Pell Grant recipients, average student test scores, and the amount of endowment per student. Not surprisingly, it finds that colleges with more Pell recipients and fewer resources tend to have lower graduation rates, with low test scores amplifying the effect.

Two factors alone—Pell percentages and test scores—explain 75 percent of the variation in colleges' graduation rates, according to the report.

Controlling for such "input" factors would yield a better measure of a college's value, the report argues, identifying institutions that are serving students efficiently and effectively.

To illustrate the point, the committee ranked 10 colleges based first on raw graduation rates and then on input-adjusted measures. Accounting for inputs reversed the ranking, with colleges having high percentages of Pell recipients at the top.

Still, the report warns against using value-added measures to award federal student aid, noting the "unexpected and possibly unpopular consequences" of shifting funds from colleges with high graduation rates toward those with low rates.

Instead, it recommends that Congress create incentives for colleges to adopt policies and practices that have been shown to improve graduation rates. If a "Race to the Top"-style approach is taken, it says, colleges should be required to compete only against peers with similar inputs.

Correction (8/1/2013, 1:17 p.m.): This article originally misstated the committee's views on "Race to the Top"-style competitions for funds. In its report, the committee does not recommend such competitions. Rather, it says that if such competitions are held, they should be based on peer groups. The article has been updated to reflect this correction.