Does Paying Students to Finish Pay Off?

In April, Massachusetts announced a new initiative to improve academic progress at its community colleges. Beginning in the 2016 - 2017 school year, the “Commonwealth Commitment” will allow full-time students with a GPA over 3.0 to claim a small, 10 percent rebate on tuition and fees after each semester completed, which comes out to about $277. But while the state should try to get more students to graduate, a small tuition rebate at the end of a semester probably won’t change a struggling student’s decision to enroll.

Tuition rebates are uncommon, but they’re not new. In 1997, the Texas Legislature began requiring all state public universities to offer a $1,000 rebate to students who graduate in four years and who do not complete more than three credit hours above the number required for their degree. Last year, Howard University announced a similar plan to improve its four year graduation rates. Unfortunately, 20 years of evidence from Texas suggests tuition rebates don’t work. Meanwhile, data from another completion incentive at Georgia State University could offer a compelling alternative.  

In 2014, fourteen Texas public universities doled out a combined $4.3 million in tuition rebates. The individual amounts varied widely: The University of Houston-Victoria awarded a single $1,000 rebate and Texas A&M University returned the most tuition at just over $1.5 million. But while 1,500 students received a rebate, about two-thirds more, an additional 2,964 students who graduated in 4 years did not. 

Given that so few students received a rebate at A&M (the institution issuing the most), these rebates have clearly not attracted as much attention as intended. But minority, first generation and low-income students may have been especially underrepresented beneficiaries of the award for various reasons. First of all, as is too common at many schools, relatively few of these students graduated from A&M in four years. For those who started in Fall 2011, just 36 percent of African American students, and 46 percent of Hispanic, first generation and Pell eligible students, respectively, graduated on time. 

The students who are graduating on time are likely to make their decision based on factors other than a small rebate. Graduating quickly for those who can provides an inherent cost benefit since they won’t have to pay another semester of tuition. Meanwhile, those who are struggling to make it through have concerns not addressed by a rebate. In one study, as many as 53 percent of college drop-outs cited needing to earn income as the biggest barrier, and almost all withdraw because of unforeseen circumstances--not just because they lack the will or academic ability.

A secondary issue in the Texas plan is that it provides a delayed reward. While the Massachusetts’ approach differs from the Texas and Howard plan in a few important ways, all three share this major shortcoming that could be leading few students to benefit from the policy even when eligible. According to well-known research often referred to as “the marshmallow test,” short-term rewards have a significantly larger impact on an individual’s behavior. When given the choice, people respond to a reward offered now even if it’s smaller, compared to a larger one in the future.

While the Massachusetts plan addresses the delay slightly better by granting the rebate after each semester, instead of after graduation, it introduces a few new problems. Requiring community college students to attend full-time and maintain a 3.0 GPA fails to consider the demographics of the students they serve. Most community college students are older, attend part-time and work while in school. Furthermore, many are low-income, and GPA requirements reward academically prepared students who more often than not come from higher socioeconomic backgrounds.

In addition to eligibility concerns, this approach introduces other common barriers for families associated with claiming consumer rebates in general. Tuition rebates under the Texas plan fall on the student to request. And as an unfunded mandate that comes out of the university’s operating budget, the state only requires that the opportunity to receive a rebate be advertised once when a student enrolls her first year. As a result, middle- to upper-income families with the most time and know-how usually remember to request a rebate four years later. But families from low-income backgrounds who do not have easy access to this information may be at a disadvantage. Like other rebates, this makes the practice a kind of tax on low-income families. Mail-in rebates and other post-sale returns have even been outlawed in some states like Connecticut on the grounds of price discrimination.

Students in danger of not making it to graduation day may be struggling financially right now, and a reward after that struggle is over will not provide any relief. Charging extra tuition upfront and holding it hostage will only worsen their stress. Instead, states and institutions should consider offering micro-completion grants along the way to those who are close to graduating but have withdrawn due to demonstrable financial need.

One program, Georgia State University’s Panther Retention Grant, has shown particular promise in this regard. An average 1,000 students per semester at GSU had been unable to pay tuition and fees, and were subsequently withdrawing. The university found that many who dropped out were students of color and first generation. Furthermore, many of them were seniors who only needed a few hundred dollars to get by.

Since the program’s inception in 2011, the institution has re-enrolled more than 7,300 students who were planning to drop out by offering an average grant of $900. Furthermore, 88 percent of the students who received grants graduated or were still enrolled a year later. As an  added bonus, for cash strapped institutions and state legislatures who are concerned about their bottomline, Georgia State University derived a 200 percent cumulative return on their investment from tuition and fee revenue since the program began.

If the goal is to get students quickly through to graduation who might not otherwise make it, then Massachusetts, Texas, and Howard should reconsider their use of tuition rebates. At less than one percent of A&M’s operating budget, 1.5 million dollars might seem inconsequential. But if redirected in a targeted way as Georgia State has been able to do, these funds could have a major impact on student success.