Institutional Responses to State Merit Aid Programs: The Case of Florida Community Colleges

This paper reports on a CCRC study that estimates the effects of a state merit aid program on community colleges by using the introduction of the Florida Bright Futures Scholarship as a natural experiment. The study examines the effects of the program in terms of institutional aid, tuition pricing, and its function as a re-sorting mechanism for high-ability students. The results suggest that community colleges do not increase students' charges to capture additional revenues, nor do they substitute state aid for institutional aid. Contrary to what was expected, institutions apparently use the scholarship program as an "ability marker" to provide additional financial aid to high-ability students.