Cornwell, Christopher M., Kyung Hee Lee, and David B. Mustard. 2005. “Student Responses to Merit Scholarship Retention Rules.” Journal of Human Resources 40(4): 895-917.

A common justification for state-sponsored merit scholarships like Georgia’s HOPE program is to promote academic achievement. However, grade-based retention rules encourage other behavioral responses. Using longitudinal records of enrolled undergraduates at the University of Georgia between 1989 and 1997, we estimate the effects of HOPE on course-taking, treating nonresidents as a control group. First, we find that HOPE decreased full load enrollments and increased course withdrawals among resident freshmen. Second, the scholarship’s influence on course-taking behavior is concentrated on students whose predicted freshmen GPAs place them on or below the scholarship-retention margin. Third, HOPE substantially increased summer school credits.

Christopher M. Cornwell is a professor of economics and senior fellow at the Institute of Higher Education at the University of Georgia. David B. Mustard is an associate professor of economics and a senior fellow at the Institute of Higher Education at the University of Georgia. Kyung Hee Lee is a BK research professor of economics at Sogang University in Seoul, Korea. We thank Arthur Snow and workshop participants at Alabama, Clemson, Columbia Teachers College, Cornell, Emory, George Mason, Georgia State, Colorado-Denver, and the University of Georgia Institute of Higher Education for their helpful comments. Earlier versions of this paper were also presented at the 2003 American Economic Association meetings and the 2004 American Education Finance Association meetings. Cornwell and Mustard gratefully acknowledge the support of the NSF under grant SES-9986469, American Educational Research Association, and Terry College of Business through its Terry-Sanford Research Grant Program. Lee’s research was funded in part by the American Education Finance Association. The data used in this article can be obtained beginning May 2006 through April 2009 from Christopher M. Cornwell at Department of Economics, Terry College of Business, University of Georgia, Athens, GA or cornwl@terry.uga.edu.