Institutional Responses to State Merit Aid Programs: The Case of Florida Community Colleges
This study estimates the effects of a state merit aid program on community colleges by using the introduction of the Florida Bright Futures Scholarship program as a natural experiment. It examines the effects of the program in terms of institutional aid, tuition pricing, and as a re-sorting mechanism for high ability students. The results suggest that community colleges do not increase students' charges to capture additional revenues, nor do they substitute state aid for institutional aid. Contrary to what was expected, institutions apparently use the scholarship program as an "ability marker" to provide additional financial aid to high ability students. Although we find no statistical evidence that the community college system is losing high ability students, there is strong support for heterogeneity in the program effect across institutions that depends on measures of the level of competition within each college's educational marketplace.
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