Federal policies, state responses, and community college outcomes: Testing an augmented Bennett hypothesis

We estimate the impact of increases in Federal student aid and higher education funding, such as the recently proposed American Graduation Initiative (AGI), on the outcomes of community colleges, including enrollments, list and average tuitions, and educational quality. We develop a reduced form model of state-level education policy in which state policy makers, who have objectives that differ from those of Federal policy makers, respond to changes in Federal policies. Our empirical specification treats state and institutional variables as endogenous; we interpret the coefficients as measuring the responses of state and institution officials to changes in Federal policies. We simulate the effects of AGI and find little evidence that states recapture Federal education resources. AGI would have a significant effect on educational quality but a limited effect on enrollments. An equivalent increase in Federal student aid would have greater impact on access and enrollments, but decrease educational quality.

► We model education policy in which states endogenously respond to Federal policies.
► We test the hypothesis that states and community colleges recapture Federal funds.
► We find Federal funds are not recaptured, but reach targeted students and colleges.
► AGI would increase educational quality but have little effect on enrollments.
► Increased Federal student aid would increase enrollments more but decrease quality.