Evaluating the Impact of State Funding Vehicles of Appropriations and Financial Aid on Graduation Rates at Public Institutions: A Multilevel Analysis

Guided by a theoretical framework derived from principal-agent models, persistence theories or college impact models, and microeconomic theory, the present study utilized multilevel modeling techniques to assess the correlation between state higher education funding vehicles of appropriations, need-based financial aid, and merit-based financial aid and graduation rates after controlling for known covariates at the institution and state levels. The present study also evaluated the correlation between funding vehicles and minority student graduation rates as well as determined if funding vehicles impact institutions with greater percentages of minority students differently than those with a less diverse student population. The present study extended the existing literature in four key ways: by expanding the examination of state funding policy beyond the first-year indicator of retention; by evaluating the use of each of the three funding vehicles rather than an either-or approach; by including state-level variables in explaining differences in graduation rates across institutions; and by utilizing averaged longitudinal data as the covariates in the model. The results demonstrated that appropriations per capita was significantly and negatively related to institutional graduation rates, and that need- based and merit-based financial aid were significantly and positively related to institutional graduation rates. In terms of minority student graduation rates, need-based financial aid and merit-based financial aid both had a significant positive relationship with black student graduation rates; while merit-based financial aid was significant and positively related to Hispanic student graduation rates. Finally, while the relationship between appropriations per capita and graduation rates did not vary significantly across states, there was significant variation in the relationship when minority student percentage was taken into account