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Pilot to Disburse Financial Aid Like a Paycheck Shows Promise

Instead of giving low-income college students their financial aid in a lump sum, a new pilot program disburses the money every two weeks and participants say the new arrangement is helping promote academic success and smart  financial management.

A new paper released by the nonprofit research organization MDRC analyzes the new "Aid Like a Paycheck" project launched by the Institute for College Access and Success in 2009. It was designed to encourage students to think of school as a job in which regular attendance and effort are rewarded. The hope was also to entice students to stay in school, since their aid was tied to continued enrollment.

Typically, a college applies a student's financial aid award toward tuition and fees, and then gives the remaining money to the student as a financial aid refund in one or two installments a semester. MDRC research shows that money often runs out, leaving students short on living and school-related expenses. If students get all of their refund, but then drop out, they may be required to return a part of the money to school.

Aid Like A Paycheck was tested on a small scale first at Mt. San Antonio College, a school with 20,500 students in southern California.  The college was chosen, in part, because, with low tuition of just $780 and typical Pell grant awards to students of up to $5,500, students often had large refunds to manage.  As part of the pilot, biweekly payments of $125 to $350 were given to about 200 students.

Soon after Mt. San Antonio College, another pilot began at 9,100-student Triton college outside of Chicago.

At the colleges, as students signed up for more credits or dropped classes, the disbursements would be adjusted to reflect their new eligibility status. Exceptions were made in the event of a demonstrated hardship, but few students made these requests.  Students in the pilot program were regularly emailed information about online tools to help with budgeting, borrowing, and money management.

Initial response to the Aid Like A Paycheck program from college staff and students has been positive, with enthusiasm generally exceeding researchers' expectations, according to the MDRC report. Students reported the new system helps them spend their money wisely, reduce their work hours, and put more energy into their school work.

While not yet tested on a large-scale, MDRC researchers say the program has the potential to help many students, particularly those with the largest financial need attending community colleges. It wouldn't be as suited for students at higher-priced schools where their aid would all be used for school expenses with little left over to their discretion in a refund check. Researchers note that administering biweekly refunds may add little or no cost compared with current procedures, especially at colleges that offer direct deposit payment options to students.

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