The Effects of Merit-Based Financial Aid on Drinking in College

We study the eect of state-level merit aid programs (such as Georgia's HOPE scholarship) on alcohol consumption among college students. Such programs have the potential to affect drinking by (1) raising students' disposable income and (2) increasing the incentive to maintain a minimum GPA in college (in order to retain the scholarship). Using two independent datasets, we find that the presence of a merit aid program in one's state leads to an overall increase in drinking among men but not among women. This increase is concentrated among individuals who are above the minimum GPA threshold necessary for the scholarship; individuals who are below the threshold GPA experience no increase in their alcohol use. Our identification strategy is supported by the finding that no change in drinking is observed for non-students in states that adopt merit-aid programs.