Recent reports underscore what many argue are serious problems with current financial aid policy. Lawmakers debate about how to handle the soon-to-expire low interest rate on federal student loans. Meanwhile, public and private colleges and universities have awarded more merit-based than need-based scholarships in recent years, leaving low-income students to seek other options or saddle large amounts of debt. As noted by Susan Dynarski and Judith Scott-Clayton, important questions to ask in addressing such issues are how effective current policies are in increasing student enrollment, performance, and completion, and what influence financial aid has on students’ choices following graduation.

From their review of the research on financial aid, Dynarski and Scott-Clayton draw four important lessons for lawmakers, colleges, and universities. First, money matters. Financial aid increases student enrollment and may improve persistence and completion. Second, all aid programs are not equally effective. Studies show that personalized information and assistance in the financial aid process can increase college entry. Third, academic incentives are helpful. Achievement-based financial aid may increase college performance and completion rates. Finally, the design of student loans may be improved to be clearer about student risks and repayments upfront.

Financial aid had become increasingly important for college enrollment and completion. Lawmakers and college administrators should draw upon the best evidence as policy changes continue to develop. To review the latest evidence on postsecondary financial aid policy, see the newest issue of Future of Children, Postsecondary Education in the United States.