The Effectiveness of Need-Based Financial Aid: Evidence from Michigan's Tuition Incentive Program

The Michigan Tuition Incentive Program (TIP) is a first-dollar financial aid program that supports low-income students in college. TIP typically covers the cost of tuition and fees for an associate's degree at Michigan community colleges and select other institutions, can be used with other financial aid (such as Federal Pell grants), and bases eligibility on consistent participation in Medicaid between the age of 9 and high school graduation. In this EPI Policy Brief, we examine whether TIP leads students to enroll in college at higher rates. This work builds on two other recent EPI Policy Briefs that have examined factors explaining the incomplete participation in the program among those that appear eligible, using both quantitative and qualitative data.

Key findings

1. Students who are eligible for TIP are more likely to go to college than those who are not eligible but similarly disadvantaged: Eligible students are 2 to 3 percentage points more likely to enroll in any college than similar ineligible students. Results suggest larger effects for students that spend more time on Medicaid in childhood; students who barely meet Medicaid elibility requirement do not have higher rates of enrollment.
    
2. TIP eligibility appears to reduce unequal access to college education: Our analysis implies that TIP appears to partially level the playing field, reducing the enrollment gap between individuals with higher socioeconomic status and those with lower socioeconomic status.

Our findings suggest that students near the TIP eligibility threshold have been less informed about the program and their eligibility than their peers with greater socioeconomic need. We find that students with a greater connection to the social safety net, who are plausibly more likely to have learned about the program, have positive enrollment effects on average. In contrast, TIP appears to have almost no effect on rates of college enrollment for students who barely meet TIP's needs-based criteria, likely because few of them know about the program.

The State of Michigan has recently made significant changes intended to improve take-up rates for TIP and other state financial aid programs; a large increase in TIP volume in 2023-2024 relative to the prior year suggests some of these efforts may be paying off, improving the effectiveness of the State's investment in college affordability.