Merit aid and post-college retention in the state

One goal of state merit-based financial aid programs is to increase the stock of college-educated labor in the state by retaining college-educated persons in the state after college. However, there has been surprisingly little research on whether state merit aid programs are effective at this goal. This paper investigates the effect of state merit aid programs on the post-college location of 24–30 year olds. We use decennial census and American Community Survey microdata to consider post-college retention effects in the 25 states that implemented merit aid programs between 1991 and 2004. Our preferred specification implies that strong state merit aid programs on average increase the probability that a college attendee lives in his or her birth state during ages 24–30 by 2.76 percentage points. We also estimate the effect for individual states and find meaningful differences across states in the effect of merit aid programs on in-state post-college retention and explore explanations for these differences.