New research from the Upjohn Institute finds that financial aid such as Pell Grants helps improve poor students’ college performance and increase their earnings. In their working paper “ProPelled: Effects of Grants on Graduation, Earnings and Welfare,” Jeffrey Denning, Benjamin Marx, and Lesley Turner examine administrative data from four-year public colleges in Texas and find that eligibility for additional grant aid makes it more likely that students complete degrees. It also decreases the time students take to receive a degree and shifts students into science, technology, engineering, and mathematics (STEM) majors.

Compared to programs in other states that provide grants to students from higher-income families, the researchers conclude that grants targeted to students from low-income families are likely to yield higher returns. The research finds a 5 to 8 percent increase in earnings starting four years after the students entered college. They also estimate that the federal government would recoup the entire cost of the grants in 10 years from tax payments on the increased earnings.

The federal Pell Grant program provides grants for families with financial need. Families with adjusted gross incomes below a certain amount—$25,000 in 2017—qualify for the largest grants, with smaller grants given to eligible families with greater incomes.

Denning, Marx, and Turner find that eligibility for the largest grant amount made little or no difference in how many credits students took their first year, how well they did in classes that year, or whether they enrolled for another year. The differences showed up later.

Students eligible for the biggest grants take significantly more credits in the next two years. In addition, they are 13 percent more likely to graduate from college in 4 years. They are also more likely to graduate in five, six and seven years, with STEM majors seeing the biggest percentage increases.

Other research, including a forthcoming paper from co-authors Marx and Turner, finds that additional grants to students from higher-income families didn't significantly increase reenrollment, credits earned, or grade-point average but had other positive effects.

Read "ProPelled: Effects of Grants on Graduation, Earnings and Welfare," by Jeffrey Denning, Benjamin Marx, and Lesley Turner.