<p>The causes of low graduation rates at less selective colleges and universities are not always academic. Many cash-strapped students fall behind on payments to the school and are forced to withdraw for financial reasons. In many cases, the sums they owe are relatively small. Some colleges have begun to track these financial delinquencies and intervene with mini-grants that keep the student in school, progressing toward graduation, and paying tuition. The strategy can boost the college’s net tuition revenue while also improving its graduation rate.</p>
<p>[How</a> a Little Data Can Solve One of Higher Education’s Biggest Problems - Commentary - The Chronicle of Higher Education](<a href=“http://chronicle.com/article/How-a-Little-Data-Can-Solve/139347/]How”>http://chronicle.com/article/How-a-Little-Data-Can-Solve/139347/)</p>
<p>Such programs may work in the short run but have adverse long-term effects. If students know they will be bailed out by “mini-grants” when they fail to pay their tuition bills in full, this will encourage them to spend their money on other things.</p>
<p>^ Could be, but as I understand it, the mini-grants aren’t an entitlement, they’re discretionary with the school administration. That means a student would be taking a huge gamble to fritter away money on other things, hoping for a mini-grant to bail him out on tuition. He’d be putting his progress toward a degree at risk.</p>
<p>No doubt some students make bad decisions about money, but I think most of the shortfalls reflect true financial need. The schools that are doing this are schools that don’t come close to meeting full financial need. The need is genuine, and despite their best efforts many students just come up short financially. </p>
<p>The bigger moral hazard concern I’d have is on the other side. If colleges that don’t meet full need calculate they can maximize their tuition revenue by making small grants to students who are close to making it financially, they may be tempted to channel more of their FA budgets to students in the “almost full pay” category, and slam the door on those with greater need. That might make financial sense for the school, but it’s a bad outcome for society because college ceases to be an engine of upward social mobility.</p>