The majority of research on the role and influence of financial grant aid typically focuses on federal aid, even though a substantial portion comes from states. State policymakers typically determine how much of a state’s financial aid allocations will be distributed based on students’ financial need, academic merit, or a combination of need and merit. We examined how need-, merit-, and combo-based state-level financial aid policies relate to students’ enrollment and completion using detailed data on states’ financial aid programs available for first-time entering college students for fiscal years 2004-2020. We found little consistent evidence of a relationship between student outcomes and the amount of aid per recipient, though, we did find practically significant correlations with aid eligibility criteria. Among institutions located in states with combo-based aid, requiring a college entrance exam for eligibility was associated with smaller enrollments and lower graduation rates compared to institutions that did not require the exams (though, this finding was not replicated when investigating requiring exams for merit-based aid).
