A Difference-in-Difference Analysis of Shifts in Postsecondary Institution Spending Patterns in Response to “Promise” Financial Aid Programs

Using a panel dataset from 2000 to 2014, this paper employs a difference-in-difference design to consider the impact of the introduction of a “promise program” on postsecondary institutions’ internal spending levels and patterns. We find that promise programs influence postsecondary institutional behavior in every area we tested: student-related and non-student-related expenditure levels and shares. We find decreases in student-related expenditure areas at 2-year institutions, but no significant change at 4-years. Non-student-related expenditures are mixed at 2-years with levels of expenditures increasing for auxiliary but decreasing in public service areas. By contrast public service expenditures increase at 4-years. Shares of expenses also shift with declining spending on student services but increased institutional support at 2-years. However, there are no changes to the share of expenses at 4-years. Overall, we find that 2- and 4-year institutions react differently to the introduction of a promise program, with the greatest impact at 2-years. JEL Classifications: I22, I23.