Not-so-Free College and the Disappointment Effect

One of the most appealing aspects of tuition-free higher education proposals is that they convey a simple message about higher education affordability. Although students will need to come up with a substantial amount of money to cover textbooks, fees, and living expenses, one key expense will be covered if students hold up their end of the bargain. That is why the results of existing private-sector college promise programs are generally promising, as shown in this policy brief that I wrote for my friends at the Midwestern Higher Education Compact.

But free college programs in the public sector often come with a key limitation—the amount of money that the state has to fund the program in a given year. Tennessee largely avoided this concern by endowing the Tennessee Promise program through lottery funds, and the program appears to be in good financial shape at this point. However, two other states are finding that available funds are insufficient to meet program demand.

• Oregon will provide only $40 million of the $48 million needed to fund its nearly tuition-free community college program (which requires a $50 student copay). As a result, the state will eliminate grants to the 15% to 20% of students with the highest expected family contributions (a very rough proxy for ability to pay).
• New York received 75,000 completed applications for its tuition-free public college program, yet still only expects to give out 23,000 scholarships. Some of this dropoff may be due to students attending other colleges, but other students are probably still counting on the money.

In both states, a number of students who expected to get state grant aid will not receive any money. While rationing of state aid dollars is nothing new (many states’ aid programs are first-come, first-served), advertising tuition-free college and then telling students they won’t receive grant aid close to the beginning of the academic year may have negative effects such as choosing not to attend college at all or diminished academic performance if they do attend. There is a sizable body of literature documenting the “disappointment effect” in other areas, but relatively little in financial aid. There is evidence that losing grant aid can hurt continuing students, yet this does not separate out the potential effect of not having money from the potential disappointment effect.

The Oregon and New York experiences provide for a great opportunity to test the disappointment effect. Both states could compare students who applied for but did not receive the grant in 2017-18 to similar students in years prior to the free college programs. This would allow for a reasonably clean test of whether the disappointment effect had any implications for college choice and eventual persistence.