The impact of financial aid on academic performance of low-income college students: A financial aid supply and demand hypothesis

This study proposes a financial aid supply and demand hypothesis to explain the influence of financial aid on the academic performance of low-income college students. Using data from 1315 funded undergraduates, we applied propensity score matching to reduce selection bias and found that the increase in financial aid had a significant positive influence on the overall funded students' academic performance. Further analysis based on students' regional background revealed that increased financial aid does not significantly affect the academic performance of students originating from urban areas but has a significant positive influence on those from township and rural areas. Moreover, the increase in financial aid has a stronger effect on students originating from townships than those from rural areas. These results provide initial support for the proposed hypothesis and emphasize the importance of the extent to which grant levels meet students' financial needs as a core mechanism influencing the effectiveness of financial aid.