Hope Program Increases College Attendance, but also Widens Racial Gap

Georgia's HOPE Scholarship, the inspiration for the federal Hope Scholarship, raised the college attendance rate of 18- to 19-year-olds by 7 to 8 percentage points but widened the gap in college attendance between blacks and whites and between those from low- and high-income families.

The federal government and the states have recently ushered in a new generation of student aid policies. These new programs differ from traditional, need-based student aid in one crucial dimension: they are aimed not at low-income students but at the middle class. For example, the federal Hope Scholarship and the Lifetime Learning Credit, which offer tax benefits of up to $1,500 a year to families of college students, are unavailable to those too poor to pay taxes. Similarly, the tax-advantaged college savings plans recently introduced by the federal government and by 41 states are most attractive to high-income families, who have the highest marginal tax rates and saving rates.

How will this new type of student aid affect college attendance rates? Will aid to middle- and high-income families actually increase college attendance, or are the new programs simply transfers to students who would have gone to college anyway? In Hope for Whom? Financial Aid for the Middle Class and Its Impact on College Attendance (NBER Working Paper No. 7756), Susan Dynarski estimates the impact of subsidies on the college attendance of middle- and upper-income youth by evaluating Georgia's HOPE (Helping Outstanding Students Educationally) Scholarship, the inspiration for the federal Hope Scholarship.

She finds that Georgia's program has had a surprisingly large impact on college attendance, increasing the college attendance rate of 18- to 19-year-olds by 7 to 8 percentage points. Georgia's program also has widened the gap in college attendance between blacks and whites and between those from low- and high-income families. The federal Hope Scholarship, if it has its intended effect on middle- and upper-income attendance, also will widen already large racial and income gaps in college attendance in the United States, Dynarski concludes.

In 1993, Georgia initiated the HOPE Scholarship, which is funded by a state lottery. The program pays for tuition and fees at Georgia's public colleges for state residents who maintain at least a B average in high school and college. Using data from the Current Population Survey, and a set of nearby states as a control group, Dynarski finds that among those youth most likely eligible for Georgia HOPE, the attendance rate has risen by nearly 11 percentage points relative to attendance of a similar population in nearby states.

This increase is concentrated among Georgia's white students, who have experienced a 12.3 percentage point rise in their enrollment rate relative to whites in nearby states. The black enrollment rate appears unaffected by HOPE. The differential impact of HOPE on blacks and whites is likely attributable to the focus of HOPE on middle- and upper-income students who perform well in high school. In particular, during the period under study, HOPE provided almost no benefits to the lowest-income students, since the scholarship was reduced dollar-for-dollar by other sources of aid including the need-based Pell Grant.

Dynarski cautions that the results of the Georgia analysis should be applied cautiously to other programs, such as the federal Hope Scholarship. Key institutional differences between the Georgia and federal subsidies suggest that the impact of the federal Hope Scholarship may be less than what Georgia experienced with its program.

-- David R. Francis